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Extended Stay America, Inc. (the “Corporation”) was incorporated in the state of Delaware on July 8, 2013. ESH Hospitality, Inc. (“ESH REIT”) was formed as a limited liability company in the state of Delaware on September 16, 2010 and was converted to a corporation on November 5, 2013. The Corporation owns, and is expected to continue to own, all of the issued and outstanding Class A common stock of ESH REIT, which, as of December 31, 2020 and 2019, represents 59 % and 58 % of the outstanding common stock of ESH REIT, respectively. Due to its controlling interest in ESH REIT, the Corporation consolidates the financial position, results of operations, comprehensive income and cash flows of ESH REIT. The term, “the Company,” as used herein refers to the Corporation and its consolidated subsidiaries, including ESH REIT.

A “Paired Share” consists of one share of common stock, par value $ 0.01 per share, of the Corporation, that is attached to and trades as a single unit with one share of Class B common stock, par value $ 0.01 per share, of ESH REIT. Each outstanding share of Corporation common stock is attached to and trades with one share of ESH REIT Class B common stock.

The Company is an integrated owner/operator of Extended Stay America-branded hotels and is also engaged in franchising, and in certain cases managing, extended stay hotels for third parties in the U.S. As of December 31, 2020 and 2019, the Company owned and operated 563 and 557 hotel properties, respectively, in 40 U.S. states, consisting of approximately 62,700 and 61,900 rooms, respectively, and franchised or managed 83 and 73 hotel properties for third parties, consisting of approximately 8,500 and 7,500 rooms, respectively. As of December 31, 2020, all 646 system-wide hotels are operated under the Extended Stay America brand.

Owned hotel properties are owned by subsidiaries of ESH REIT and are operated by subsidiaries of the Corporation (the “Operating Lessees”) pursuant to leases between ESH REIT and the Operating Lessees. The hotels are managed by ESA Management LLC (“ESA Management”), a subsidiary of the Corporation. The Extended Stay America brand is owned by ESH Hospitality Strategies LLC (“ESH Strategies”), also a subsidiary of the Corporation. ESH Strategies licenses the brand and intellectual property to the Operating Lessees and third parties.

Basis of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and include the financial position, results of operations, comprehensive income, changes in equity and cash flows of the Corporation and its consolidated subsidiaries, including ESH REIT. Third-party equity interests in consolidated subsidiaries are presented as noncontrolling interests. Despite the fact that each share of Corporation common stock is paired on a one-for-one basis with each share of ESH REIT Class B common stock, the Corporation does not own ESH REIT Class B common stock; therefore, ESH REIT Class B common stock represents a third-party equity interest. As such, the rights associated with ESH REIT Class B common stock, along with other third-party equity interests in ESH REIT, are presented as noncontrolling interests in the accompanying consolidated financial statements. Changes in ownership interests in a consolidated subsidiary that do not result in a loss of control are accounted for as equity transactions. All intercompany accounts and transactions have been eliminated. With respect to the income taxes disclosure (see Note 11), certain prior period amounts have been reclassified for comparability to current period presentation.

Use of Estimates —The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and amounts of revenues and expenses during the reporting period. Management used significant estimates to determine the estimated useful lives of tangible assets, as well as in the assessment of tangible and intangible assets for impairment and estimated liabilities for insurance reserves and income taxes. Actual results could differ from those estimates.

Cash and Cash Equivalents —The Company considers all cash on hand, demand deposits with financial institutions, credit card receivables, and short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. The Company has deposits in excess of $250,000 with financial institutions that are not insured by the Federal Deposit Insurance Corporation. The Company does not believe cash and cash equivalents expose it to significant credit risk.

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Restricted Cash —Restricted cash consists of deposits held for insurance collateral.

Accounts Receivable and Allowance for Credit Losses —Accounts receivable consists of receivables due from current hotel guests, corporate customers and third-party intermediaries with respect to owned hotels, as well as royalty and other receivables due from franchisees. An allowance for credit losses is made when collection is considered doubtful. Balances are considered past due when payment is not received by the contractual due date. When management determines that accounts receivable are uncollectible, they are written off against the allowance for credit losses. The Company considers historical collection activity and business forecasts in estimating allowance for credit losses. During the year ended December 31, 2020, we revised our estimated rate of credit loss due to the macro-economic impact of the COVID-19 pandemic on actual and forecasted results.

The table below summarizes the changes in the allowance for credit losses for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			December 31, 2020			December 31, 2019			December 31, 2018
Allowance for credit losses - beginning of year			$	2,749		$	2,075		$	2,206
Bad debt expense			13,109			7,078			5,551
Write-offs			( 7,895 )			( 6,404 )			( 5,682 )
Allowance for credit losses - end of year			$	7,963		$	2,749		$	2,075

Property Acquisitions —Identifiable net assets and liabilities acquired in an asset acquisition are recorded at cost, allocated based on their relative fair values on the date of acquisition. Identifiable net assets and liabilities acquired in a business combination are recorded based on their fair value on the date of acquisition. The fair value of acquired land, site improvements, building and improvements and furniture, fixtures and equipment are determined on an “if-vacant” basis considering a variety of factors, including the physical condition and quality of the hotels, estimated rates and valuation assumptions consistent with current market conditions, independent appraisals and other relevant market data obtained in connection with the acquisition of the hotels. Results of operations of acquired hotel properties are included in the accompanying consolidated statements of operations since their dates of acquisition.

Property and Equipment —Property and equipment additions are recorded at cost. Major improvements that extend the life or utility of property or equipment are capitalized and depreciated over a period equal to the shorter of the estimated useful life of the improvement or the remaining estimated useful life of the asset. Ordinary repairs and maintenance are charged to expense as incurred. Depreciation and amortization are recorded on a straight-line basis over the following estimated useful lives:

Hotel buildings			7 – 49 years
Hotel building improvements			4 – 39 years
Hotel site improvements			3 – 20 years
Hotel furniture, fixtures and equipment			1 – 10 years
Corporate furniture, fixtures equipment			3 – 15 years

Management assesses long-lived assets for potential impairment quarterly, as well as when events or changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The identification of events or changes in circumstances that indicate the carrying value of assets may not be recoverable requires significant judgment. The Company reviews for impairment indicators at the lowest level of identifiable cash flows based on quantitative, qualitative and certain industry-related factors. Quantitative factors include, but are not limited to, hotel property EBITDA, EBITDA margins and EBITDA multiples, and serve to screen assets with historical, current or projected operating cash flow losses or deterioration. Qualitative factors include a change in physical condition, economic environment, regulatory environment or primary use, including the evaluation of the asset for disposition.

Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property or group of hotel properties to the estimated future undiscounted cash flows expected to be generated by the hotel property or group of hotel properties. Impairment is recognized when estimated future undiscounted cash flows, including expected proceeds from disposition, are less than the carrying value of the hotel property or group of hotel properties. To the extent that a hotel property or group of hotel properties is impaired, the excess carrying amount over estimated fair value is recognized as an impairment charge. Fair value is determined based upon the discounted cash flows of the hotel property or group of hotel properties, bids, quoted market prices or independent appraisals, as considered necessary.

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The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on significant judgments and assumptions regarding holding period, current and future operating performance and current and future market conditions. It is possible that such judgments and/or estimates will change; in particular, the effects of the COVID-19 pandemic could cause economic and market conditions to deteriorate, and if this occurs, or if the Company's expected holding period for real estate assets changes, the Company may recognize impairment charges or losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets. During the year ended December 31, 2020, the Company recognized impairment charges of $ 1.1 million (see Note 5).

Intangible Assets —Intangible assets include trademarks, corporate customer relationships and licenses related to certain internal-use software. Corporate customer relationships and software licenses are amortized using the straight-line method over their estimated useful lives; the estimated useful life of customer relationships is 20 years, and the estimated useful life of software licenses is the remaining non-cancellable term of each respective contract. Trademarks and licenses related to software in process are not amortized.

Definite-lived intangible assets are reviewed for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite-lived intangible assets are reviewed for impairment quarterly, and the Company tests for impairment more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. At such time their classification as indefinite-lived intangible assets is reassessed. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of its indefinite-lived intangible assets is less than its carrying amount.

The Company believes that the carrying amount of its intangible assets are recoverable and there are no changes in circumstances that would more likely than not reduce the fair value of its reporting units below their carrying amount. Therefore, no impairment charges related to intangible assets were recognized during the years ended December 31, 2020, 2019 or 2018. However, if the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends.

Goodwill —Goodwill represents the purchase price in excess of the fair value of net assets acquired in conjunction with the acquisition of the Company's predecessor in 2010. Goodwill is reviewed for impairment quarterly and more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has two reportable operating segments, owned hotels and franchise and management. There is no goodwill associated with the franchise and management segment. Management analyzes goodwill associated with owned hotels when analyzing for potential impairment. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company believes that the carrying amount of its goodwill is recoverable and there are no changes in circumstances that would more likely than not reduce the fair value of its reporting units below their carrying amount. Therefore, no impairment charges related to goodwill were recognized during the years ended December 31, 2020, 2019 or 2018. However, if the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends.

Assets Held For Sale —The Company classifies assets as held for sale when management commits to a formal plan to sell the assets, actively seeks a buyer for the assets and the consummation of a sale is considered probable and is expected within one year. The Company takes into consideration when determining whether the consummation of a sale is probable the following criteria: (i) whether a purchase and sale agreement has been executed, (ii) whether the buyer has a significant non-refundable deposit at risk and (iii) whether significant financing contingencies exist. Upon designating an asset as held for sale, the Company stops recognizing depreciation expense and records the asset at the lower of its carrying value, including allocable goodwill, or its estimated fair value less estimated costs to sell. Any such adjustment to the carrying value is recognized as an impairment charge.

Discontinued Operations— The Company classifies hotel properties sold or held for sale as discontinued operations when the disposal represents a strategic shift that has (or will have) a major effect on its operations and financial results. No hotel properties were classified as discontinued operations during the years ended December 31, 2020, 2019 or 2018.

Deferred Financing Costs —Costs incurred in obtaining financing are amortized over the terms of the related loans on a straight-line basis, which approximates the effective interest method. Deferred financing costs are presented in the accompanying consolidated balance sheets as a direct deduction of the carrying amount of the related debt liability, except those

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incurred under a revolving-debt arrangement, which are presented as a component of other assets. Upon repayment, or in conjunction with a material change in the terms of the underlying debt agreement, remaining unamortized costs are written off as a component of net interest expense. Amortization of deferred financing costs is included as a component of net interest expense (see Note 7).

Revenue from Owned and Operated Hotels — Revenue generated from owned and operated hotels consists of room and other hotel revenues recognized when services are provided. When a reservation is made, the Company deems that the parties have approved a contract in accordance with customary business practices and are committed to perform their respective obligations. At such time, each party’s rights regarding the services to be transferred are identified, payment terms are specified, the contract has commercial substance and, in most instances, it is probable the Company will collect substantially all consideration to which it will be entitled in exchange for services.

Each room night consumed by a guest with a cancellable reservation represents a contract whereby the Company has a performance obligation to provide the room night at an agreed upon price. For cancellable reservations, the Company recognizes revenue as each performance obligation (i.e., each room night) is met. Such contract is renewed if the guest continues their stay. If at any time during a guest’s stay the Company believes it is not probable it will collect substantially all consideration to which it will be entitled, revenue is recognized on a cash basis until such time as collection is considered probable.

For room nights consumed by a guest with a non-cancellable reservation, the entire reservation period represents the contract term whereby the Company has a performance obligation to provide the room night or nights at an agreed upon price. For non-cancellable reservations, the Company recognizes revenue over the term of the performance period (i.e., the reservation period) as room nights are consumed. For these reservations, the room rate is typically fixed over the reservation period. The Company uses an output method based on performance completed to date (i.e., room nights consumed) to determine the amount of revenue it recognizes on a daily basis if the length of a non-cancellable reservation exceeds one night since consumption of room nights indicates when services are transferred to the guest. In certain instances, variable consideration may exist with respect to the transaction price, such as discounts, coupons and price concessions made upon guest checkout.

In evaluating its performance obligation, the Company bundles the obligation to provide the guest the room itself with other obligations (such as free WiFi, access to on-site laundry facilities and parking), as the other obligations are not distinct and separable because the guest cannot benefit from the additional amenities without the consumed room night. The Company’s obligation to provide the additional items or services is not separately identifiable from the fundamental contractual obligation (i.e., providing the room and its contents). The Company has no performance obligations once a guest’s stay is complete.

Certain revenues are generated through third-party intermediaries or distribution channels (i.e., online travel agents). Regardless of the basis on which the Company is compensated (i.e., gross or net), the Company is responsible for fulfilling the promise to provide the hotel room and related services to the guest and retains inventory risk. Since the Company controls the inventory and services provided and because third party intermediaries are typically not contractually required to guarantee room night consumption, the Company is the principal in these transactions. As such, the Company is required to record revenue at an amount equal to the price charged to the guest (i.e., on a gross basis). Third-party intermediaries that pay the Company directly (i.e., on a net basis) typically charge the guest additional fees, blend the room offering with other offerings at amounts which are not allocable and may adjust the price without the Company’s approval. As such, the Company is unable to calculate the room rate charged to the guest. Since any estimate the Company would make has significant uncertainty that ultimately would not be resolved, despite its role as principal, in these instances the Company records revenue equal to the amount paid by the third-party intermediaries (i.e., the net amount).

Revenue from Franchise and Management Fees — Revenue generated from franchise and management fees consists of the following:

• Franchise fees, which consist of an initial fee and an ongoing royalty fee based on a percentage of a hotel’s monthly revenue in exchange for the access to and use of the Company’s brand name and other intellectual property. Initial fees are deferred and recognized over the expected contract or customer life. Royalty fees are recognized over time as franchisees derive value from the license to use the intellectual property.

• Management fees, which consist of an ongoing base fee calculated as a percentage of a hotel’s monthly revenue in exchange for on-site hotel management services. Management fees are recognized over time as third-party hotel owners derive value from on-site personnel and related services.

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• Other revenues from franchised and managed properties, which include the reimbursement of costs incurred on behalf of third-party hotel owners on a direct and an indirect basis, as follows:

◦ Direct costs incurred with respect to franchise and management agreements include on-site hotel personnel and incremental reservation and distribution costs for which the Company is reimbursed on a dollar-for-dollar basis. Since the Company employs the hotel personnel and has discretion over reservation and distribution costs, it is the principal with respect to these services and revenue is recognized on a gross basis.

◦ Indirect costs incurred with respect to franchise agreements include costs associated with certain shared system-wide platforms (i.e., system services), such as marketing, technology infrastructure, central reservations, national sales and revenue management systems. The Company is reimbursed for indirect costs through a system service fee, or program fee, based on a percentage of a hotel’s monthly revenue. System service fees are recognized over time as franchisees derive value from the license to use these processes and systems. The Company has discretion over how it spends system service fees and is the principal with respect to these services. Revenue is recognized on a gross basis; expense is recognized as incurred. Over time, the Company manages system services to break-even, but the timing of system service fee revenues will typically not align with expenses incurred to operate the programs.

The promise to provide access to the Company’s intellectual property is combined with the promise to provide system services to form a single performance obligation since the promises generally accompany one another. Hotel management services form a single performance obligation. As noted above, each identified performance obligation is considered to be a series of services transferred over time. Revenue is recognized on an output method based on performance completed to date. The Company recognizes revenue in the amount to which it has a right to bill third parties under their respective franchise or management agreements, as it has a right to consideration in an amount that corresponds directly with the third parties’ hotel revenues. Franchise, management and system service fees are characterized as variable consideration and vary from period to period. In the event that fees include variables that extend beyond the current period, the Company uses the most likely amount method to determine the amount of revenue to record based on a reasonable revenue forecast for the applicable hotel. In most instances, the Company does not have constraining estimates, as third-party hotel revenues are typically available and obtained monthly.

Advertising Costs —Advertising costs are expensed as incurred. For the years ended December 31, 2020, 2019 and 2018, total advertising costs were $ 26.0 million, $ 29.4 million and $ 25.9 million, respectively, and are classified as hotel operating expenses in the accompanying consolidated statements of operations.

Fair Value of Financial Instruments —U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments:

Level 1 —Observable inputs, such as quoted prices in active markets at the measurement date for identical assets or liabilities

Level 2 —Significant inputs that are observable, directly or indirectly, such as other quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability

Level 3 —Significant unobservable inputs for which there is little to no market data and for which the Company makes its own assumptions about how market participants would price the asset or liability

Fair value is defined as the price that would be received when selling an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest-level input significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, deposits, accounts payable and accrued liabilities, term loans, senior notes and revolving credit facilities. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, deposits, accounts payable and accrued liabilities and revolving credit facilities are representative of their fair values due to the short-term nature or frequent settlement of these instruments. The fair values of term loans and senior notes are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on the Company’s instruments or from quoted market prices, when available (see Note 7).

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Derivative Instruments —The Company from time to time uses derivative instruments to manage its exposure to interest rate and commodity price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes in interest rates and commodity prices. The Company’s derivatives expose it to credit risk to the extent that counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties. Derivative instruments, including derivative instruments embedded in other contracts, are recorded in the accompanying consolidated balance sheets as either assets or liabilities measured at fair value, unless the transactions qualify and are designated as normal purchases and sales. Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met (see Note 8). The Company does not enter into derivative instruments for trading or speculative purposes.

Insurance Reserves —The Company utilizes various insurance programs for workers’ compensation, general liability and health insurance claims. Retained losses require estimates in determining the liability for claims arising under these programs. Workers’ compensation, general liability and health insurance liabilities are estimated using actuarial evaluations based on historical and projected claims and medical and other cost trends. Corresponding receivables are recorded for losses that will be reimbursed by insurance. As of December 31, 2020 and 2019, $ 42.9 million and $ 40.6 million, respectively, of liabilities for such insurance programs are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. As of December 31, 2020 and 2019, $ 15.8 million and $ 14.8 million, respectively, of insurance-related reimbursements receivable are included in other assets on the consolidated balance sheets.

Investments —The Company consolidates a subsidiary when it has the ability to direct the activities that most significantly impact the economic performance of the subsidiary. Judgment is required with respect to the consolidation of investments, including partnership and joint venture entities, in terms of the evaluation of control, including assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests that are not controllable through voting interests. Third party equity interests in consolidated subsidiaries are presented as noncontrolling interests.

If a subsidiary, affiliate or other entity is a variable interest entity (“VIE”), it is subject to the consolidation framework specifically for VIEs. The Company considers an entity a VIE if equity investors own an interest therein that does not have the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In accordance with Financial Accounting Standards Board (“FASB”) ASC 810, Consolidations , the Company reviews subsidiaries and affiliates, as well as other entities, to determine if (i) they should be considered VIEs, and (ii) whether their consolidation determinations should change based on changes in their characteristics.

Income Taxes —The Corporation’s taxable income includes the taxable income or loss of its wholly-owned subsidiaries and distribution income related to its ownership of approximately 59 % of ESH REIT. As a result, approximately 59 % of ESH REIT’s distributions are subject to corporate income tax.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. ESH REIT’s deferred tax rates are adjusted to reflect expected future distributions and the deduction allowed upon distribution. The Corporation’s deferred tax assets and liabilities include the estimated impact of the future reversal of ESH REIT’s deferred tax assets and liabilities which affect future dividend income to be recognized by the Corporation upon distribution.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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ESH REIT has elected to be taxed as and expects to continue to qualify as a real estate investment trust (“REIT”) under provisions of the Internal Revenue Code (the “Code”). A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding capital gains, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates and generally would be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.

During the years ended December 31, 2020, 2019 and 2018, ESH REIT distributed approximately 100 % of its taxable income and, as a result, incurred minimal current federal income tax. In the future, ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. ESH REIT will incur federal and state income tax at statutory rates if its taxable income is not distributed. Accordingly, ESH REIT expects to distribute approximately 100% of its taxable income for the foreseeable future.

Comprehensive Income —Comprehensive income includes net income and other comprehensive income (loss), which consists of foreign currency translation adjustments and interest rate cash flow hedge adjustments. Comprehensive income is presented in the accompanying consolidated statements of comprehensive income. Foreign currency translation adjustments and interest rate cash flow hedge adjustments are presented as separate components of consolidated equity.

Equity-Based Compensation— The Corporation and ESH REIT each maintain a Long-Term Incentive Plan (“LTIP”), approved by their shareholders. Under the LTIPs, the Corporation and ESH REIT may issue to eligible employees or directors equity-based awards in respect of Paired Shares with service, performance or market vesting conditions. The Company recognizes costs related to equity-based awards over their vesting periods. The issuing entity classifies equity-based awards granted in exchange for employee or director services as either equity awards or as liability awards. The classification of an award either as an equity award or a liability award is generally based upon cash settlement options. Equity awards are measured based on their fair value on the date of grant. Liability awards are re-measured to fair value each reporting period. The value of all awards is recognized over the requisite service period, which is the period during which an employee or director is required to provide services in exchange for the award (usually the vesting period). No compensation expense is recognized for awards for which employees or directors do not render the requisite services. All outstanding awards granted are classified as equity awards, except those equity-based awards issued by ESH REIT to its directors, which are classified as liability awards.

Segments —The Company has two reportable operating segments based on the manner in which it evaluates its business: (i) owned hotels and (ii) franchise and management. The Company assesses the performance of these segments on an individual basis (see Note 9).

Recently Issued Accounting Standards

Reference Rate Reform —In March 2020, the FASB issued an accounting standards update that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR, subject to meeting certain criteria. The Company adopted this update on March 12, 2020, and the update is effective through December 31, 2022, during which time the Company may elect to apply the optional expedients and exceptions offered under the standard. As of December 31, 2020, the Company's variable rate debt and interest rate swap are tied to rates that reference LIBOR (see Notes 7 and 8) and the Company had not applied any of these optional expedients or exceptions. The adoption of this update did not, and is not expected to, have a material effect on the Company's consolidated financial statements.

Income Taxes —In December 2019, the FASB issued an accounting standards update which simplifies the accounting for income taxes. The update amends several topics including interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim-period tax accounting. The Company adopted this update on January 1, 2021. The adoption of this update is not expected to have a material effect on the Company's consolidated financial statements.

Fair Value Measurement— In August 2018, the FASB issued an accounting standards update which modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement . The Company adopted this update on January 1, 2020. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

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Intangibles-Goodwill and Other—Internal-Use Software— In August 2018, the FASB issued an accounting standards update which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The Company adopted this update on January 1, 2020, using a prospective transition method. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

Goodwill— In January 2017, the FASB issued an accounting standards update in which the guidance on testing for goodwill was updated to eliminate Step 2 in the determination on whether goodwill should be considered impaired. Annual and/or interim assessments are still required. The Company adopted this update on January 1, 2020, using a prospective transition method. The adoption of this update did not have a material effect on the Company's consolidated financial statements.

Financial Instruments—Credit Losses— In June 2016, the FASB issued an accounting standards update which requires the measurement of an impairment allowance for certain financial assets based on a company’s current estimate of all contractual cash flows it does not expect to collect. The new standard primarily impacts the manner in which the Company estimates its allowance for uncollectible trade receivables. The standard requires the Company to measure its allowance for credit losses based on current conditions, historical experience and reasonable and supportable forecasts for each pool of receivables with similar risk characteristics. The Company adopted this update on January 1, 2020, using a modified retrospective method. The adoption of this update did not have a material effect on the Company's consolidated financial statements and had no effect on or impact to retained earnings.

Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of the Corporation’s unrestricted common stock outstanding. Diluted net income per share is computed by dividing net income available to common shareholders, as adjusted for potentially dilutive securities, by the weighted-average number of shares of unrestricted common stock outstanding plus potentially dilutive securities. Dilutive securities include certain equity-based awards (see Note 14) and are included in the calculation provided that the inclusion of such securities is not anti-dilutive.

The calculations of basic and diluted net income per share, including a reconciliation of the numerators and denominators, are as follows (in thousands, except per share data):

			Year Ended December 31,
			2020						2019						2018
Numerator:
Net income available to Extended Stay America, Inc. common shareholders - basic			$	23,267					$	69,668					$	112,864
Income attributable to noncontrolling interests assuming conversion			( 95 )						( 82 )						( 128 )
Net income available to Extended Stay America, Inc. common shareholders - diluted			$	23,172					$	69,586					$	112,736
Denominator:
Weighted-average number of Extended Stay America, Inc. common shares outstanding - basic			177,708						186,546						189,389
Dilutive securities			395						276						432
Weighted-average number of Extended Stay America, Inc. common shares outstanding - diluted			178,103						186,822						189,821
Net income per Extended Stay America, Inc. common share - basic			$	0.13					$	0.37					$	0.60
Net income per Extended Stay America, Inc. common share - diluted			$	0.13					$	0.37					$	0.59

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ACQUISITIONS

2019 Acquisition — On November 12, 2019, the Company acquired a 121 -room operating hotel from Crestwood Suites of Lakeland, LLC for $ 10.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The majority of the purchase price was allocated to building and improvements, with estimated useful lives ranging from five to 44 years.

2018 Acquisition — On May 30, 2018, the Company acquired a 115 -room operating hotel from Legacy Rock Hill, LLC for $ 13.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The majority of the purchase price was allocated to building and improvements, with estimated useful lives ranging from four to 49 years. Prior to its acquisition by the Company, the hotel opened in late 2017.

No hotels were acquired during the year ended December 31, 2020. During the years ended December 31, 2020, 2019 and 2018, acquired hotel properties contributed total room and other hotel revenues, total operating expenses and income before income tax expense as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Total room and other hotel revenues			$	4,213					$	2,003					$	1,106
Total operating expenses			3,424						1,868						966
Income before income tax expense			789						135						140

DISPOSITIONS

The table below summarizes hotel dispositions for the prior three years (in thousands, except number of hotels and number of rooms). No dispositions were reported as discontinued operations.

Year						Location						Month Sold						Number of Hotels			Number of Rooms			Net Proceeds						Gain (Loss) on Sale						Franchised/Managed (1)
2020						California						November						1			146			$	63,556					$	52,525					No
2018						Various						November						14			1,386			$	34,855					$	1,331		(2)			Yes
2018						Various						September						16			1,677			$	60,710					$	6,293		(2)			Yes
2018						Various						September						16			1,772			$	58,144					$	( 3,014 )		(2)			Yes
2018						Various						February						25			2,420			$	111,156					$	6,810		(2)			Yes
2018						Texas						March						1			101			$	44,090					$	31,058					No			(3)

____________________

(1) As of December 31, 2020.

(2) Net of impairment charges of $ 16.8 million , $ 24.3 million, $ 6.3 million and $ 2.1 million, respectively, recognized prior to sale.

(3) Management agreement terminated in 2019.

During the years ended December 31, 2020, 2019 and 2018, disposed hotel properties contributed total room and other hotel revenues, total operating expenses and income (loss) before income tax expense as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Total room and other hotel revenues			$	1,832					$	4,528					$	58,069
Total operating expenses			1,429						1,746						85,102			(1)
Income (loss) before income tax expense			403						2,782						( 27,033 )			(1)

_____________________

(1) Includes impairment charges of $ 37.4 million.

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Net investment in property and equipment as of December 31, 2020 and 2019, consists of the following (in thousands):

			December 31, 2020						December 31, 2019
Hotel properties:
Land and site improvements (1)			$	1,246,441					$	1,228,231
Building and improvements			2,881,855						2,792,579
Furniture, fixtures and equipment (2)			783,414						745,145
Total hotel properties			4,911,710						4,765,955
Development in process (3)			46,496						70,864
Corporate furniture, fixtures, equipment, software and other			29,735						30,680
Total cost			4,987,941						4,867,499
Less accumulated depreciation:
Hotel properties			( 1,518,236 )						( 1,353,772 )
Corporate furniture, fixtures, equipment, software and other			( 23,750 )						( 20,178 )
Total accumulated depreciation			( 1,541,986 )						( 1,373,950 )
Property and equipment—net			$	3,445,955					$	3,493,549

_________________________________

(1) Includes finance lease asset of $ 4.0 million and $ 3.2 million as of December 31, 2020 and 2019, respectively.

(2) Includes finance lease asset of $ 0.4 million and $ 0 as of December 31, 2020 and 2019, respectively.

(3) Includes finance lease asset of $ 0 and $ 0.8 million as of December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, development in process consisted of 8 and 15 land parcels, respectively, that were in various phases of construction and/or development. As of December 31, 2020, the Company expects to delay commencement of construction at four of these locations as a result of current market uncertainty.

During the years ended December 31, 2020, 2019 and 2018, the following owned, newly constructed hotels were opened under the Extended Stay America brand:

Opening Date			Location			Number of Hotels			Number of Rooms
December 2020			Florida			1			124
November 2020			Florida			1			144
August 2020			Florida			1			124
June 2020			Various			2			248
April 2020			South Carolina			1			120
March 2020			Florida			1			120
December 2019			Various			2			260
September 2018			South Carolina			1			107

During the years ended December 31, 2020, 2019 and 2018, newly-built hotels contributed total room and other hotel revenues, total operating expenses and income (loss) before income tax expense as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Total room and other hotel revenues			$	11,228					$	2,199					$	152
Total operating expenses			10,901						1,856						201
Income (loss) before income tax expense			327						343						( 49 )

During the year ended December 31, 2020, the Company recognized impairment charges totaling $ 1.1 million related to one hotel in Illinois and an undeveloped land parcel. During the year ended December 31, 2019, the Company recognized an impairment charge of $ 2.7 million related to one hotel in New York. The hotel-related impairment charges during the years

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ended December 31, 2020 and 2019 were incurred as a result of a decline in the hotels' estimated future operating cash flows. During the year ended December 31, 2018, the Company recognized impairment charges totaling $ 43.6 million for 21 hotels generally located in the Midwestern U.S., the majority of which were incurred with evaluating the potential sale of certain non-core assets.

The Company used Level 3 unobservable inputs and in certain instances Level 2 observable inputs to determine the impairment on its property and equipment. Quantitative information with respect to observable inputs consists of non-binding bids or, in certain instances, binding agreements to sell a hotel or portfolio of hotels to one or more third parties. Quantitative information with respect to unobservable inputs consists of internally developed cash flow models that include the following assumptions, among others: projections of revenues, expenses and hotel-related cash flows based on assumed long-term growth rates, demand trends, expected future capital expenditures, estimated discount rates that range from 6 % to 10 % and terminal capitalization rates that range from 7 % to 11 %. These assumptions are based on the Company’s historical data and experience, the Company’s budgets, industry projections and overall micro and macro-economic projections.

The Company’s intangible assets and goodwill as of December 31, 2020 and 2019, consist of the following (in thousands):

									December 31, 2020
									Gross Carrying Amount						Accumulated Amortization						Net Book Value
Definite-lived intangible assets—customer relationships									$	26,800					$	( 13,710 )					$	13,090
Definite-lived intangible assets—software licenses									10,546						( 2,005 )						8,541
Definite-lived intangible assets—software license in process									2,299						—						2,299
Indefinite-lived intangible assets—trademarks									10,163						—						10,163
Total intangible assets									49,808						( 15,715 )						34,093
Goodwill									45,055						—						45,055
Total intangible assets and goodwill									$	94,863					$	( 15,715 )					$	79,148

									December 31, 2019
									Gross Carrying Amount						Accumulated Amortization						Net Book Value
Definite-lived intangible assets—customer relationships									$	26,800					$	( 12,370 )					$	14,430
Definite-lived intangible assets—software licenses									10,353						( 763 )						9,590
Indefinite-lived intangible assets—trademarks									10,163						—						10,163
Total intangible assets									47,316						( 13,133 )						34,183
Goodwill									45,192						—						45,192
Total intangible assets and goodwill									$	92,508					$	( 13,133 )					$	79,375

The remaining weighted-average amortization period for amortizing intangible assets is approximately nine years as of December 31, 2020. Estimated future amortization expense for amortizing intangible assets is as follows (in thousands):

Years Ending December 31,
2021			$	2,590
2022			2,590
2023			2,590
2024			2,590
2025			2,590
Thereafter			8,681
Total			$	21,631

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During the years ended December 31, 2020 and 2019, the following debt transactions occurred (in thousands):

			December 31, 2020						December 31, 2019
Debt, net of deferred financing costs and debt discounts - beginning of year (1)			$	2,632,636					$	2,395,507
Additions:
Proceeds from senior notes			—						750,000
Proceeds from revolving credit facilities			399,765						—
Amortization and write-off of deferred financing costs and debt discount (2)			7,530						12,967
Deductions:
Payments on term loan facilities			( 6,309 )						( 507,261 )
Payments on revolving credit facilities			( 350,000 )						—
Payments of deferred financing costs (2)			—						( 18,577 )
Debt, net of deferred financing costs and debt discounts - end of year (1)			$	2,683,622					$	2,632,636

______________________

(1) Excludes mandatorily redeemable preferred stock and finance lease obligations.

(2) Excludes amortization and payments of deferred financing costs related to revolving credit facilities.

Summary — The Company's outstanding debt, net of unamortized debt discount and unamortized deferred financing costs, as of December 31, 2020 and 2019, consists of the following (dollars in thousands):

									Carrying Amount												Unamortized Deferred Financing Costs
Loan			Stated Amount						December 31, 2020						December 31, 2019						December 31, 2020						December 31, 2019						Stated Interest Rate																		Maturity Date
Term loan facility
ESH REIT Term Facility			$	630,909					$	621,351		(1)			$	627,368		(1)			$	7,684					$	9,030					LIBOR (2) + 2.00 %																		9/18/2026			(3)
Senior notes
2025 Notes			1,300,000						1,294,301			(4)			1,292,986			(4)			12,232						15,055						5.25 %																		5/1/2025
2027 Notes			750,000						750,000						750,000						11,879						13,633						4.63 %																		10/1/2027
Revolving credit facilities
ESH REIT Revolving Credit Facility			350,000						—						—						2,061			(5)			2,606			(5)			LIBOR (2) + 2.00 %																		9/18/2024
Corporation Revolving Credit Facility			50,000						49,765						—						520			(5)			556			(5)			LIBOR (2) + 2.25 %																		9/18/2024
Total									$	2,715,417					$	2,670,354					$	34,376					$	40,880

______________________

(1) The ESH REIT Term Facility (defined below) is presented net of an unamortized debt discount of $ 1.7 million and $ 2.0 million as of December 31, 2020 and 2019, respectively.

(2) As of December 31, 2020 and 2019, one-month LIBOR was 0.14 % and 1.76 %, respectively. As of December 31, 2020 and 2019, $ 100.0 million and $ 200.0 million, respectively, of the ESH REIT Term Facility was subject to an interest rate swap at a fixed rate of 1.175 %.

(3) Amortizes in equal quarterly installments of $ 1.6 million. In addition to scheduled amortization, subject to certain exceptions, annual mandatory prepayments of up to 50 % of Excess Cash Flow, as defined, may be required under the ESH REIT Term Facility. Annual mandatory prepayments for a given fiscal year are due during the first quarter of the following fiscal year. No mandatory prepayments are required in the first quarter of 2021 based on ESH REIT's Excess Cash Flow for the year ended December 31, 2020.

(4) The 2025 Notes (defined below) are presented net of an unamortized discount of $ 5.7 million and $ 7.0 million as of December 31, 2020 and 2019, respectively.

(5) Unamortized deferred financing costs related to revolving credit facilities are included in other assets in the accompanying consolidated balance sheets.

ESH REIT Credit Facilities

ESH REIT’s credit agreement, as may be amended and supplemented from time to time, provides for senior secured credit facilities (collectively, the “ESH REIT Credit Facilities”) which consist of a $ 630.9 million senior secured term loan facility (the “ESH REIT Term Facility”) and a $ 350.0 million senior secured revolving credit facility (the “ESH REIT Revolving Credit Facility”). Subject to the satisfaction of certain criteria, borrowings under the ESH REIT Credit Facilities may be increased by an amount of up to $ 600.0 million, plus additional amounts, so long as, after giving effect to the incurrence of such incremental facility and the application of proceeds thereof, ESH REIT’s pro-forma senior loan-to-value ratio is less than or equal to 45 %.

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Obligations under the ESH REIT Credit Facilities are guaranteed by certain existing and future material domestic subsidiaries of ESH REIT, other than those owning real property, subject to customary exceptions. Obligations under the ESH REIT Credit Facilities are secured, subject to certain exceptions, including an exception for real property, by a first-priority security interest in substantially all of the assets of ESH REIT and the guarantors.

ESH REIT Term Facility — The ESH REIT Term Facility bears interest at a rate equal to (i) LIBOR plus 1.75 % for any period during which ESH REIT maintains a public corporate family rating better than or equal to BB (with a stable or better outlook) from S&P and Ba3 (with a stable or better outlook) from Moody’s (a “Level 1 Period”) or LIBOR plus 2.00 % for any period other than a Level 1 Period; or (ii) a base rate, (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50 % or (C) the one-month adjusted LIBOR rate plus 1.00 %), plus 0.75 % during a Level 1 Period or 1.00 % for any period other than a Level 1 Period. ESH REIT has the option to prepay outstanding loans under the ESH REIT Term Facility without penalty.

ESH REIT Revolving Credit Facility —Borrowings under the ESH REIT Revolving Credit Facility bear interest at a rate equal to (i) LIBOR plus a spread that ranges from 1.50 % to 2.00 % based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined, or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50 %, or (C) the one-month adjusted LIBOR rate plus 1.00 %) plus a spread that ranges from 0.50 % to 1.00 % based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined. ESH REIT incurs a fee of 0.30 % or 0.175 % on the unutilized revolver balance based on the amount outstanding under the facility. ESH REIT is also required to pay customary letter of credit fees and agency fees. The ESH REIT Revolving Credit Facility provides for the issuance of up to $ 50.0 million of letters of credit. As of December 31, 2020, ESH REIT had no letters of credit outstanding and available borrowing capacity of $ 350.0 million under the facility.

The ESH REIT Revolving Credit Facility is subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45 % when the aggregate principal amount of borrowings and letters of credit under the ESH REIT Revolving Credit Facility, excluding up to $ 30.0 million of letters of credit, is equal to or greater than 35 % of the aggregate available principal amount of the ESH REIT Revolving Credit Facility on the applicable fiscal quarter end date.

In March 2020, ESH REIT borrowed the full available capacity of $ 350.0 million under the ESH REIT Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in business markets. In August 2020, ESH REIT repaid the full outstanding balance under the ESH REIT Revolving Credit Facility. As of December 31, 2020, the outstanding balance under the facility was $ 0 .

ESH REIT 2025 Notes

In May 2015 and March 2016 , ESH REIT issued $ 500.0 million and $ 800.0 million, respectively, of its 5.25 % senior notes due in May 2025 (the “2025 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, in private placements pursuant to Rule 144A of the Securities Act of 1933, as amended. ESH REIT may redeem the 2025 Notes at any time, in whole or in part, at a redemption price equal to 102.625 % of the principal amount, declining annually to 100 % of the principal amount from May 1, 2023 and thereafter, plus accrued and unpaid interest. Upon a Change of Control, as defined, holders of the 2025 Notes have the right to require ESH REIT to redeem the 2025 Notes at 101 % of the principal amount, plus accrued and unpaid interest.

The 2025 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the ESH REIT Credit Facilities. The 2025 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2025 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.

ESH REIT 2027 Notes

In September 2019, ESH REIT issued $ 750.0 million of its 4.625 % senior notes due in 2027 (the “2027 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, at a price equal to 100 % of par value in a private placement pursuant to Rule 144A of the Securities Act of 1933, as amended. ESH REIT may redeem the 2027 Notes at any time on or after October 1, 2022, in whole or in part, at a redemption price equal to 102.313 % of the principal amount, declining annually to 100 % of the principal amount from October 1, 2024 and thereafter, plus accrued and unpaid interest. Prior to October 1, 2022, ESH REIT may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount, plus a “make-whole” premium, as defined, plus accrued and unpaid interest. Prior to October 1, 2022, subject to certain conditions, ESH REIT may redeem up to 35 % of the aggregate principal amount of the 2027 Notes at a redemption price equal

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to 101 % of the aggregate principal amount, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings, provided 65 % of the original amount of the principal remains outstanding after the occurrence of each such redemption. Upon a Change of Control, as defined, holders of the 2027 Notes have the right to require ESH REIT to redeem the 2027 Notes at 101 % of the principal amount, plus accrued and unpaid interest.

The 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the ESH REIT Credit Facilities. The 2027 Notes are not guaranteed by the Corporation or any of its subsidiaries that lease ESH REIT’s properties or its subsidiaries that engage in franchising or management activities or own intellectual property. The 2027 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2027 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.

Corporation Revolving Credit Facility

The Corporation’s revolving credit facility, as may be amended and supplemented from time to time (the “Corporation Revolving Credit Facility”), provides for the issuance of up to $ 50.0 million of letters of credit as well as borrowing on same day notice, referred to as swingline loans, in an amount of up to $ 20.0 million. Borrowings under the Corporation Revolving Credit Facility bear interest at a rate equal to (i) LIBOR plus 2.25 % or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50 % or (C) the one-month adjusted LIBOR plus 1.00 %) plus 1.25 %. In addition to paying interest on outstanding principal, the Corporation incurs a fee of 0.30 % or 0.175 % on the unutilized revolver balance based on the amount outstanding under the facility.

In March 2020, the Company borrowed $ 49.8 million under the Corporation Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in business markets. The proceeds may in the future be used for working capital, general corporate or other purposes permitted under the agreement. As of December 31, 2020, the Corporation had one letter of credit outstanding of $ 0.2 million and no available borrowing capacity under the facility.

Obligations under the Corporation Revolving Credit Facility are guaranteed by certain existing and future material domestic subsidiaries of the Corporation, excluding ESH REIT and its subsidiaries and subject to customary exceptions. The facility is secured, subject to certain exceptions, by a first-priority security interest in substantially all of the assets of the Corporation and the guarantors. If obligations are outstanding under the facility during any fiscal quarter, the Corporation Revolving Credit Facility requires that the Consolidated Leverage Ratio, as defined, calculated as of the end of such fiscal quarter for any consecutive four quarter period, be less than or equal to 8.75 to 1.00. (the “Leverage Covenant,” subject to the Four Quarter Suspension Period, as defined below). The facility is also subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45 % when the aggregate principal amount of borrowings and letters of credit under the Corporation Revolving Credit Facility, excluding up to $ 30.0 million of letters of credit, is equal to or greater than 25 % of the aggregate available principal amount of the Corporation Revolving Credit Facility on the applicable fiscal quarter end date.

In May 2020, the Company entered into an amendment to the Corporation Revolving Credit Facility and obtained a suspension of the Leverage Covenant from the beginning of the second quarter of 2020 through the end of the first quarter of 2021 (the “Four Quarter Suspension Period”). For the second quarter of 2021 through the fourth quarter of 2021, the leverage covenant calculation has been modified to use annualized EBITDA, as opposed to trailing twelve-month EBITDA. Additionally, the amendment provides for the Corporation to borrow up to $ 150.0 million from ESH REIT through an intercompany loan facility. Throughout the Four Quarter Suspension Period, the Company has agreed to maintain minimum liquidity of $ 150.0 million and to limit share repurchases and dividend payments made by the Corporation.

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Covenants

The ESH REIT Credit Facilities, the 2027 Notes, the 2025 Notes, the Corporation Revolving Credit Facility and certain intercompany loan facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, limit the Corporation’s or ESH REIT’s ability and the ability of their respective subsidiaries to engage in certain transactions. In addition, the ESH REIT Revolving Credit Facility and the Corporation Revolving Credit Facility contain financial covenants that, subject to certain conditions, require compliance with certain senior loan-to-value and consolidated leverage ratios. The agreements governing the Corporation’s and ESH REIT’s indebtedness also contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and, in the case of the ESH REIT Credit Facilities and certain intercompany loan facilities, certain material operating leases and management agreements. As of December 31, 2020, the Corporation and ESH REIT were in compliance with all covenants under their respective debt agreements.

The Company’s continued compliance with these covenants could be impacted by current or future economic conditions associated with the COVID-19 pandemic. The Company's failure to maintain compliance with its debt covenants or to pay debt obligations as they become due would give rise to default under one or more agreements governing the Company's indebtedness, and could entitle the lenders under the defaulted agreements to accelerate the maturity of the amounts thereunder, which could raise substantial doubt about the Company's ability to continue as a going concern. The Company may seek additional covenant waivers or amendments, though there is no certainty that it would be successful in such efforts.

Future Maturities of Debt — The future maturities of debt as of December 31, 2020, are as follows (in thousands):

Years Ending December 31,
2021			$	6,309		(1)
2022			6,309			(1)
2023			6,309			(1)
2024			56,074			(1)
2025			1,306,309			(1)
Thereafter			1,341,477			(1)
Total			$	2,722,787

______________________

(1) Under the ESH REIT Term Facility, annual mandatory prepayments of up to 50 % of Excess Cash Flow, as defined, may be required. Annual mandatory prepayments for a given fiscal year are due during the first quarter of the following fiscal year. No mandatory prepayments are required in the first quarter of 2021 based on ESH REIT's Excess Cash Flow for the year ended December 31, 2020.

Interest Expense, net — The components of net interest expense during the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Contractual interest (1)			$	122,296					$	117,067					$	116,348
Amortization of deferred financing costs and debt discount			8,237						8,059						8,005
Debt extinguishment and other costs (2)			917						8,301						3,030
Interest income			( 1,317 )						( 5,663 )						( 2,513 )
Total			$	130,133					$	127,764					$	124,870

______________________

(1) Includes dividends on shares of mandatorily redeemable Corporation preferred stock. Net of capitalized interest of $ 2.9 million, $ 2.2 million and $ 0.5 million, respectively.

(2) Includes interest expense on finance leases (See Note 13) and unused facility fees.

Mandatorily Redeemable Preferred Stock —The Corporation has authorized 350.0 million shares of preferred stock, $ 0.01 par value, of which 0 and 7,130 shares of mandatorily redeemable voting preferred stock were issued and outstanding as of December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the remaining outstanding 7,130 shares of the 8% mandatorily redeemable voting preferred stock were redeemed for $ 7.1 million.

Due to the fact that the 8.0 % mandatorily redeemable voting preferred stock was mandatorily redeemable by the Corporation, it was classified as a liability on the accompanying consolidated balance sheets. Dividends on these mandatorily

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redeemable voting preferred shares, paid at a rate of 8.0 % per year, are classified as net interest expense on the accompanying consolidated statements of operations.

Fair Value of Debt —As of December 31, 2020 and 2019, the estimated fair value of the Company’s debt was $ 2.8 billion and $ 2.7 billion, respectively, and the estimated fair value of the Corporation’s 8.0 % mandatorily redeemable preferred stock was $ 0.0 million and $ 7.1 million, respectively. Estimated fair values are determined by comparing current borrowing rates and risk spreads offered in the market (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available, to the stated interest rates and spreads on the Company’s debt and the Corporation's 8.0 % mandatorily redeemable preferred stock. The estimated fair value of the Corporation Revolving Credit Facility is equal to its carrying value due to its short-term nature and frequent settlement.

ESH REIT is a counterparty to a floating-to-fixed interest rate swap, at a fixed rate of 1.175 % and a floating rate of one-month LIBOR to manage its exposure to interest rate risk on a portion of the ESH REIT Term Facility. The notional amount of the interest rate swap as of December 31, 2020 was $ 100.0 million. The notional amount decreases by an additional $ 50.0 million every six months until the swap’s maturity in September 2021.

For the year ended December 31, 2020, the Company paid interest of $ 0.6 million and for each of the years ended December 31, 2019 and 2018, the Company received proceeds of $ 2.8 million that offset interest expense. As of December 31, 2020, $ 0.5 million of interest expense is expected to be recognized through the swap’s maturity.

The table below presents the amounts and classification of the interest rate swap on the Company's consolidated financial statements (in thousands):

			(Accrued liabilities) other assets			Accumulated other comprehensive (loss) income, net of tax												Interest expense (income), net
As of December 31, 2020			$	( 525 )		$	( 445 )		(1)
As of December 31, 2019			$	831		$	706		(2)
For the year ended December 31, 2020																		$	643
For the year ended December 31, 2019																		$	( 2,842 )
For the year ended December 31, 2018																		$	( 2,765 )

_______________________________

(1) Changes during the year ended December 31, 2020, on a pre-tax basis, consisted of changes in fair value of $( 1.4 ) million.

The Company’s operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by its chief operating decision maker to assess performance and make decisions regarding the allocation of resources. The Company’s operating and reportable segments are defined as follows:

• Owned Hotels —Earnings are derived from the operation of Company-owned hotel properties and include room and other hotel revenues.

• Franchise and management —Earnings are derived from fees under franchise and management agreements with third parties. These contracts provide the Company the ability to earn compensation for licensing the Extended Stay America brand name, providing access to shared system-wide platforms and/or management services.

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The performance of the Company’s operating segments is evaluated primarily on income from operations. Selected financial data is provided below (in thousands):

			Year Ended December 31,
			2020						2019						2018
Revenues:
Owned hotels			$	1,022,065					$	1,196,091					$	1,259,182
Franchise and management (1)			8,454						9,000						7,086
Total segment revenues			1,030,519						1,205,091						1,266,268
Corporate and other (2)			76,257						77,084						80,942
Other revenues from franchise and managed properties (3)			14,861						16,716						12,567
Intersegment eliminations (4)			( 79,321 )						( 80,672 )						( 84,718 )
Total			$ 1,042,316						$ 1,218,219						$ 1,275,059
Income (loss) from operations:
Owned hotels (5)			$	225,605					$	346,999					$	394,669
Franchise and management (1)			8,454						9,000						7,086
Total segment income from operations			234,059						355,999						401,755
Corporate and other (2)			( 30,071 )						( 32,019 )						( 23,168 )
Other expenses from franchise and managed properties, net (3)			( 2,180 )						( 2,154 )						( 650 )
Total			$	201,808					$	321,826					$	377,937

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(1) Includes intellectual property fees charged to the owned hotels segment of $ 3.1 million, $ 3.6 million and $ 3.8 million for the years ended December 31, 2020 , 2019 and 2018, respectively, that are eliminated in the consolidated statements of operations.

(2) Includes revenues generated and operating expenses incurred in connection with the overall support of owned, franchised and managed hotels and related operations. Corporate and other revenues are comprised of management fees earned by and cost reimbursements charged to the owned hotels segment that are eliminated in the consolidated statements of operations.

(3) Includes direct reimbursement of specific costs incurred under franchise and management agreements that the Company is reimbursed for on a dollar-for-dollar basis, as well as indirect reimbursement of certain costs incurred associated with the Company’s shared platform (i.e., system services) (see Note 2 ).

(4) Includes management fees, intellectual property fees and other cost reimbursements charged to the owned hotels segment that are eliminated in the consolidated statements of operations.

(5) Net of impairment charges of $ 1.1 million, $ 2.7 million and $ 43.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Also includes gain on sale of hotel properties, net of $ 52.5 million, $ 0 and $ 42.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total assets for each of the Company’s operating segments are provided below (in thousands):

			December 31, 2020						December 31, 2019
Assets:
Owned hotels			$	3,802,896					$	3,661,609
Franchise and management			13,319						14,576
Total segment assets			3,816,215						3,676,185
Corporate and other			274,039						397,568
Intersegment eliminations			( 1,105 )						( 43,157 )
Total			$	4,089,149					$	4,030,596

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Total capital expenditures for each of the Company's operating segments are provided below (in thousands):

			Year Ended December 31,
			2020						2019						2018
Capital Expenditures:
Owned hotels			$	188,047					$	260,155					$	207,997
Franchise and management			—						—						250
Total segment capital expenditures			188,047						260,155						208,247
Corporate and other			4,684						1,139						1,027
Total			$	192,731					$	261,294					$	209,274

Disaggregation of Revenues

The following table disaggregates room revenues generated from owned hotels by booking source for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Year Ended December 31,
			2020						2019						2018
Property direct			$	257,999					$	286,002					$	360,718
Central call center			313,123						312,956						303,336
Proprietary website			212,328						225,393						220,734
Third-party intermediaries			187,015						307,478						300,965
Travel agency global distribution systems			24,431						39,897						51,558
Total room revenues from owned hotels (1)			$	994,896					$	1,171,726					$	1,237,311

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(1) In addition to room revenues, the Company’s owned hotels earned $ 27.2 million, $ 24.4 million and $ 21.9 million of other hotel revenues during the years ended December 31, 2020, 2019 and 2018, respectively.

The following table disaggregates room revenues generated from owned hotels by length of guest stay for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Year Ended December 31,
			2020						2019						2018
1-6 nights			$	281,390					$	441,417					$	457,380
7-29 nights			211,029						243,263						261,674
30+ nights			502,477						487,046						518,257
Total room revenues from owned hotels (1)			$	994,896					$	1,171,726					$	1,237,311

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(1) In addition to room revenues, the Company’s owned hotels earned $ 27.2 million, $ 24.4 million and $ 21.9 million of other hotel revenues during the years ended December 31, 2020, 2019 and 2018, respectively.

The following table disaggregates revenues generated from franchised and managed hotels for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Year Ended December 31,
			2020						2019						2018
Management fees			$	940					$	1,239					$	1,175
Franchise fees			4,449						4,173						2,135
Indirect reimbursements (system service fees)			5,062						5,221						2,444
Direct reimbursements			9,799						11,495						10,123
Total revenues from franchised and managed hotels			$	20,250					$	22,128					$	15,877

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Outstanding Contract Liabilities

Contract liabilities relate to advance deposits with respect to owned hotels and, with respect to franchised hotels, advance consideration received, such as initial franchise fees paid when a franchise agreement is executed and certain system implementation fees paid at the time of installation. Contract liabilities are included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets. The following table presents changes in outstanding contract liabilities as of December 31, 2020, 2019 and 2018, respectively, and the amount of outstanding contract liabilities that were recognized as revenue during the years ended December 31, 2020, 2019 and 2018, respectively (in thousands):

			Year Ended December 31,
			2020						2019
Contract liabilities - beginning of year			$	16,231					$	13,829
Contract liabilities - end of year			$	17,197					$	16,231
Portion of beginning balance recognized as revenue during the year			$	10,933					$	9,233

Performance Obligations

The Corporation's taxable income includes the taxable income (loss) of its wholly-owned subsidiaries and distribution income related to its 59 % ownership of ESH REIT.

Income (loss) before income tax expense for the years ended December 31, 2020, 2019 and 2018 consists of the following (in thousands):

			Year Ended December 31,
			2020						2019						2018
U.S.			$	71,610					$	194,143					$	254,172
Canada			146						310						( 340 )
Total			$	71,756					$	194,453					$	253,832

The components of income tax (benefit) expense for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Federal (including foreign):
Current			$	( 57,975 )					$	28,297					$	31,401
Deferred			30,877						( 6,697 )						711
State:
Current			5,895						9,134						9,656
Deferred			( 3,297 )						( 1,419 )						308
Total			$	( 24,500 )					$	29,315					$	42,076

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The differences between income tax (benefit) expense at the effective tax rate and the statutory U.S. federal income tax rate for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Year Ended December 31,
			2020												2019												2018
Tax at statutory rate			$	15,069					21.0		%				$	40,835					21.0		%				$	53,305					21.0		%
State income tax			2,533						3.5						5,844						3.0						7,847						3.1
Nontaxable ESH REIT income			( 28,504 )						( 39.7 )						( 18,577 )						( 9.6 )						( 14,976 )						( 5.9 )
Equity-based compensation			704						1.0						( 69 )						—						( 524 )						( 0.2 )
Other permanent differences			863						1.2						629						0.3						30						—
Estimate of future nontaxable distributions from ESH REIT			—						—						—						—						5,020						2.0
Change in ESH REIT temporary differences			15,396						21.5						475						0.3						( 9,525 )						( 3.7 )
Valuation allowance			3						—						( 1 )						—						( 2 )						—
Tax credits			( 613 )						( 0.9 )						( 783 )						( 0.4 )						( 661 )						( 0.3 )
Benefit of NOL carryback to higher rate year			( 29,601 )						( 41.3 )						—						—						—						—
Other - net			( 350 )						( 0.4 )						962						0.5						1,562						0.6
Income tax expense (benefit) - net			$	( 24,500 )					( 34.1 )		%				$	29,315					15.1		%				$	42,076					16.6		%

The significant components of deferred tax assets and deferred tax liabilities as of December 31, 2020 and 2019, consist of the following (in thousands):

			December 31, 2020						December 31, 2019
Deferred tax assets:
Net operating loss carryforwards			$	13,417					$	2,914
Accruals and allowances (1)(2)			23,418						19,327
Lease liabilities (1)			372						869
Equity-based compensation			561						972
Depreciable property			—						2,890
Other			274						665
Total deferred tax assets			38,042						27,637
Valuation allowance			( 2,880 )						( 2,914 )
Net deferred tax assets			35,162						24,723
Deferred tax liabilities:
Depreciable property			( 17,941 )						—
Undistributed ESH REIT income			( 24,495 )						( 5,074 )
Right-of-use assets (1)			( 302 )						( 712 )
Intangible assets			( 2,263 )						( 2,112 )
Prepaid expenses			( 1,377 )						( 668 )
Other			( 2 )						—
Total net deferred tax (liabilities) assets:			$	( 11,218 )					$	16,157

_________________________________

(1) Deferred tax assets and liabilities pertaining to right-of-use assets and lease liabilities for leases with third-parties as of December 31, 2019, were previously reported net under accruals and allowances. Balances were reclassified to conform to current period presentation.

(2) Includes deferred tax assets and liabilities pertaining to intercompany right-of-use assets and lease liabilities recorded at the Corporation for leases between the Operating Lessees and ESH REIT, which eliminate in consolidation.

ESH REIT has elected to be taxed as and expects to continue to qualify as a REIT under Sections 856 through 860 of the Code. A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding net capital gain, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates and generally would be precluded from qualifying as a REIT for the subsequent four

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taxable years following the year during which it lost its REIT qualification. ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.

During the years ended December 31, 2020, 2019 and 2018 , ESH REIT recognized a dividends paid deduction for 100 % of its taxable income, incurring no federal income tax and minimal state and local income tax. T he following table summarizes ESH REIT’s taxable income prior to distributions, cash distributions to its shareholders and the prior year deduction of cash distributions for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Year Ended December 31,
			2020						2019						2018
Taxable income prior to distribution			$	178,030					$	233,433					$	297,211
Cash distributions (1)			$	218,263					$	240,600					$	277,075
Prior year deduction of cash distributions (2)			$	20,225					$	26,514					$	2,829

_________________________________

(1) Excludes accumulated distributions on RSUs settled.

(2) Cash distributions that were previously deducted to offset taxable income in the prior year.

All cash distributions for the years ended December 31, 2020, 2019 and 2018 were considered ordinary taxable income. The 2020 distribution includes a special distribution of $ 149.8 million declared in December 2020 and paid in January 2021. Approximately $ 129.8 million of the special distribution was deductible to ESH REIT in 2020; the remaining $ 20.0 million will be deducted in 2021. The special distribution will be subject to current taxation to the Corporation as dividend income in 2021 at the time of receipt.

As of December 31, 2020, the book basis of ESH REIT’s property and equipment was $ 21.8 million greater than the tax basis.

As of December 31, 2020, the Company has recorded $ 13.4 million of tax net operating loss carryforwards related to its operations in Canada and various state jurisdictions. These operating loss carryforwards have varying expiration dates ranging from 5 years to indefinite. As of December 31, 2020, the Company recorded a valuation allowance of $ 2.9 million on the net operating loss carryforwards of its Canadian Operating Lessee and state net operating losses with respect to ESH REIT. The Company has concluded that, in light of available evidence, it is more likely than not that these net operating loss carryforwards will not be realized.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was passed during the first quarter of 2020, allows the Company to carry back $ 211.4 million of 2020 tax net operating losses to offset taxable income for the years 2015 to 2017 and seek refund of taxes previously paid. As of December 31, 2020, the Company recorded a $ 74.0 million receivable for a tax refund expected as a result of the 2020 tax net operating loss carryback, which is included in other assets in the accompanying consolidated balance sheets.

The Company evaluates its open tax positions using the criteria established by ASC 740, Income Taxes . The Company has concluded that it has not taken any material tax positions that are not more likely than not to be sustained upon examination and has therefore not recorded any reserves for uncertain tax positions. The Company’s federal income tax returns for the years 2017 to present may be subject to examination by the Internal Revenue Service and other taxing authorities. As of December 31, 2020, a subsidiary of ESH REIT was under examination by the Canadian Revenue Agency for tax years 2014 through 2017. As this audit is still in process, the timing of the resolution and any payments that may be required cannot be determined at this time. The Company believes that, to the extent a liability may exist, it is not material as of December 31, 2020.

The Corporation

The Corporation has authorized 3,500.0 million shares of common stock, par value $ 0.01 per share, of which 177.6 million and 179.5 million shares were issued and outstanding as of December 31, 2020 and 2019, respectively. Each share of

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the Corporation’s outstanding common stock is attached to and trades as a single unit with one share of Class B common stock, par value $ 0.01 per share, of ESH REIT.

The Corporation has authorized 350.0 million shares of preferred stock, $ 0.01 par value, of which 0 and 7,130 shares of mandatorily redeemable voting preferred stock were issued and outstanding as of December 31, 2020 and 2019, respectively. Dividends on these mandatorily redeemable voting preferred shares were paid quarterly in arrears at a rate of 8.0 % per year. During the year ended December 31, 2020, the remaining outstanding 7,130 shares of the 8% mandatorily redeemable voting preferred stock were redeemed for $ 7.1 million. The 8.0 % mandatorily redeemable voting preferred stock was classified as a liability on the accompanying consolidated balance sheets and is further described in Note 7.

The Corporation paid cash distributions totaling $ 18.0 million, $ 67.2 million and $ 45.8 million during the years ended December 31, 2020, 2019 and 2018, respectively, to its common shareholders, all of which were considered taxable dividends.

Paired Share Repurchase Program —In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program. As a result of several increases in authorized amounts and program extensions, including a program extension authorized in December 2020, effective January 1, 2021, the combined Paired Share repurchase program authorizes the Corporation and ESH REIT to purchase up to $ 550.0 million in Paired Shares through December 31, 2021. Repurchases may be made at management’s discretion from time to time in the open market, in privately negotiated transactions or by other means (including through Rule 10b5-1 trading plans). As of December 31, 2020, the Corporation and ESH REIT repurchased and retired 28.6 million Paired Shares for $ 283.0 million and $ 166.4 million, including transaction fees, respectively, and $ 101.1 million remained available under the combined Paired Share repurchase program.

Noncontrolling Interests

Third party equity interests in the Corporation consist of the outstanding shares of the Class B common stock of ESH REIT, which represent 41 % and 42 % of ESH REIT’s total common equity as of December 31, 2020 and 2019, respectively, and the outstanding 125 shares of 12.5 % preferred stock of ESH REIT. These interests, which are not owned by the Corporation, are presented as noncontrolling interests.

ESH REIT

ESH REIT has authorized 4,300.0 million shares of Class A common stock, par value $ 0.01 per share, of which 250.5 million shares were issued and outstanding as of December 31, 2020 and 2019. All issued and outstanding shares of ESH REIT Class A common stock were held by the Corporation as of December 31, 2020 and 2019. ESH REIT has authorized 7,800.0 million shares of Class B common stock, par value $ 0.01 per share, of which 177.6 million and 179.5 million shares were issued and outstanding as of December 31, 2020 and 2019, respectively. Each share of ESH REIT’s outstanding Class B common stock is attached to and trades as a single unit with one share of the Corporation’s common stock.

ESH REIT has authorized 350.0 million shares of preferred stock, par value $ 0.01 per share, of which no shares were issued or outstanding as of December 31, 2020 and 2019. Additionally, ESH REIT has authorized 125 shares of preferred stock, no par value, all of which were issued and outstanding as of December 31, 2020 and 2019. The outstanding ESH REIT preferred stock pays dividends at a rate of 12.5 % per year. With respect to dividends and distributions upon ESH REIT’s liquidation, winding-up or dissolution, the 12.5 % preferred stock ranks senior to the ESH REIT Class A and Class B common stock. The liquidation preference of the 12.5 % preferred stock is $ 1,000 per share plus any accumulated unpaid dividends. Shares of 12.5 % preferred stock may be redeemed, in whole or in part, at any time for a per share amount equal to the liquidation preference plus all accumulated unpaid dividends.

ESH REIT paid cash distributions totaling $ 68.9 million (of which $ 40.1 million was paid to the Corporation), $ 241.0 million (of which $ 137.8 million was paid to the Corporation), and $ 277.8 million (of which $ 157.8 million was paid to the Corporation) during the years ended December 31, 2020, 2019 and 2018, respectively.

On December 22, 2020, the Board of Directors of ESH REIT declared a special cash distribution of $ 0.35 per share on its Class A and Class B common stock. The special distribution totals $ 149.8 million, $ 87.7 million of which is payable to the Corporation and is eliminated in consolidation, and $ 62.1 million of which is payable to Class B common shareholders and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. ESH REIT paid the distribution on January 20, 2021 to shareholders of record as of January 6, 2021.

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Lease Commitments —The Company is a tenant under long-term ground leases at five of its hotel properties. Three of these leases are operating leases and two are finance leases. The ground lease agreements terminate at various dates between 2023 and 2096 and several of the agreements include multiple renewal options for generally five or ten year periods. The Company is also a tenant under an operating lease for its corporate office, which terminates in August 2021 and includes renewal options for two five -year terms. As the Company is reasonably certain that it will exercise the options to extend its ground leases, fixed payments associated with the extensions are included in the measurement of related right-of-use assets and lease liabilities. Payments associated with the option to extend the corporate office lease are not included in the measurement of the right-of-use asset and lease liability, as the associated payments cannot be reasonably estimated. Additionally, as of December 31, 2020, the Company leased certain technology equipment located at its hotel sites under finance leases.

Operating lease costs related to ground leases are included in hotel operating expenses, while operating lease costs related to the Company’s office lease are included in general and administrative expenses, in the consolidated statements of operations. Finance lease interest costs are included in interest expense, net in the consolidated statements of operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the consolidated balance sheets (see Note 5). The Company has no variable lease costs or short-term leases.

For the years ended in December 31, 2020 and 2019, components of the Company's total lease costs are as follows (in thousands):

			Year Ended December 31,
			2020						2019
Operating lease costs			$	3,076					$	3,119
Finance lease costs			301						242
Total lease costs			$	3,377					$	3,361

Rent expense on operating leases was $ 3.2 million for the year ended December 31, 2018, and was recognized on a straight-line basis.

The Company’s right-of-use assets and lease liabilities are as follows (in thousands):

			December 31, 2020						December 31, 2019
Right-of-use assets:
Operating (1)			$	2,538					$	4,863
Finance (2)			4,354						3,979
Lease liabilities:
Operating (3)			10,442						12,590
Finance			3,668						3,379

_________________________________

(1)    Included in other assets on the accompanying consolidated balance sheets.

(2)    Included in property and equipment, net on the accompanying consolidated balance sheets.

(3)    Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

Maturities of lease liabilities as of December 31, 2020, are as follows (in thousands):

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Years Ending December 31,						Operating Leases						Finance Leases
2021						$	2,221					$	850
2022						806						397
2023						552						400
2024						503						402
2025						503						429
Thereafter						77,091						2,671
Total						$	81,676					$	5,149
Total discounted lease liability						$	10,442					$	3,668
Difference between undiscounted cash flows and discounted cash flows						$	71,234					$	1,481
Weighted-average remaining lease term						52 years						10 years
Weighted-average discount rate						6.5		%				6.7		%

The Company's leases do not contain residual value guarantees and do not contain restrictions with respect to incurring additional financial obligations or paying dividends. As of December 31, 2020, the Company does not have any material leases that have not yet commenced.

Letter of Credit —As of December 31, 2020, the Company had one outstanding letter of credit, issued by the Corporation for $ 0.2 million, which is collateralized by the Corporation Revolving Credit Facility.

Legal Contingencies —As of December 31, 2020, six purported class action lawsuits in California have been filed against the Company. The complaints allege, among other things, failure to provide meal and rest periods, wage and hour violations and violations of the Fair Credit Reporting Act. The complaints seek, among other relief, collective and class certification of the lawsuits, unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the court might find just and proper.

With respect to the Fair Credit Reporting Act violations alleged in the lawsuits described above, the parties reached a tentative settlement agreement in May 2019, which is subject to certain conditions, including court approval. During the year ended December 31, 2019, the Company recorded a payable and a corresponding insurance receivable for the amount of the tentative settlement. The expected resolution of the alleged Fair Credit Reporting Act violations in the lawsuits did not have, and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

With respect to the meal and rest period and the wage and hour violations alleged in the lawsuits described above, excluding the one lawsuit described below, the parties reached a tentative settlement agreement in January 2020, which is subject to certain conditions, including court approval. During the three months ended December 31, 2019, the Company incurred a loss and recorded a charge equal to the amount of the tentative settlement. The expected resolution of the alleged meal and rest period and wage and hour violations in the lawsuits did not have, and is not expected to have, a material adverse impact on the Company’s consolidated financial statements, results of operations or liquidity.

With respect to one lawsuit, although the Company believes it is reasonably possible that it may incur losses associated with such matter, it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements or other resolution based on the early stage of the lawsuit, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and the lack of resolution of significant factual and legal issues. However, depending on the amount and timing, an unfavorable resolution of the lawsuit or a change in the Company's assessment of the likelihood of loss could have a material adverse effect on the Company’s consolidated financial statements, results of operations or liquidity in a future period. The Company believes that it has meritorious defenses and is prepared to vigorously defend the lawsuit.

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The Corporation and ESH REIT each maintain a LTIP, approved by their shareholders. Under each LTIP, the Corporation and ESH REIT may issue to eligible employees or directors restricted stock units (“RSUs”) or other equity-based awards in respect of Paired Shares with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIPs has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of December 31, 2020, 4.8 million Paired Shares were available for future issuance under the LTIPs.

Equity-based compensation expense is recognized by amortizing the grant-date fair value on a straight-line basis over the requisite service period of each award. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Equity-based compensation expense, which is included in general and administrative expenses in the accompanying consolidated statements of operations, was $ 6.5 million, $ 6.9 million and $ 7.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, unrecognized compensation expense related to outstanding equity-based awards and the related weighted-average period over which it is expected to be recognized subsequent to December 31, 2020, is presented in the following table. Total unrecognized compensation expense will be adjusted for forfeitures as they occur.

			Unrecognized Compensation Expense Related to Outstanding Awards (in thousands)						Remaining Weighted-Average Amortization Period (in years)
RSUs with service vesting conditions			$	8,964					2.0
RSUs with market vesting conditions			2,465						1.8
Total unrecognized compensation expense			$	11,429

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RSU activity during the years ended December 31, 2020, 2019 and 2018, was as follows:

															Performance-Based Awards
			Service-Based Awards												Performance Vesting												Market Vesting
			Number of RSUs (in thousands)						Weighted- Average Grant- Date Fair Value						Number of RSUs (in thousands)						Weighted- Average Grant- Date Fair Value						Number of RSUs (in thousands)						Weighted- Average Grant- Date Fair Value (1)
Outstanding at January 1, 2018			602						$	17.06					153						$	17.45					211						$	16.46
Granted			401						$	19.42					57						$	19.52					204						$	17.41
Settled			( 399 )						$	17.46					( 153 )						$	17.45					( 41 )						$	20.76
Forfeited			( 81 )						$	18.05					( 25 )						$	19.52					( 77 )						$	15.36
Outstanding at December 31, 2018			523						$	18.42					32						$	19.52					297						$	16.79
Granted			687						$	16.02					24						$	17.20					247						$	15.35
Settled			( 249 )						$	18.03					( 33 )						$	19.46					( 53 )						$	12.36
Forfeited			( 33 )						$	17.86					( 23 )						$	17.20					( 236 )						$	16.52
Outstanding at December 31, 2019			928						$	16.77					—						$	—					255						$	16.56
Granted			629						$	13.17					—						$	—					290						$	11.52
Settled			( 353 )						$	17.44					—						$	—					( 46 )						$	18.58
Forfeited			( 218 )						$	16.66					—						$	—					( 123 )						$	14.96
Outstanding at December 31, 2020			986						$	14.26					—						$	—					376						$	12.96
Vested at December 31, 2020			139						$	14.84					—						$	—					39						$	17.41
Nonvested at December 31, 2020			847						$	14.17					—						$	—					337						$	12.45
Vested at December 31, 2019			38						$	15.52					—						$	—					45						$	18.58
Nonvested at December 31, 2019			890						$	16.82					—						$	—					210						$	16.11

_____________________

(1) An independent valuation was performed contemporaneously with the issuance of grants.

The grant-date fair value of awards with service vesting conditions is based on the closing price of a Paired Share on the date of grant. Service-based awards vest over a period of one to three years , subject to the grantee’s continued employment or service. The grant-date fair value of awards with performance vesting conditions is based on the closing price of a Paired Share on the date of grant. Equity-based compensation expense with respect to these awards is adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements. These awards vest over a one -year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0 % to 200 % of the awarded number of RSUs based on the achievement of defined performance targets. The grant-date fair value of awards with market vesting conditions is based on an independent third-party valuation. These awards vest at the end of a three -year period, subject to the grantee’s continued employment, with the ability to earn Paired Shares in a range of 0 % to 150 % of the awarded number of RSUs based on the total shareholder return of a Paired Share relative to the total shareholder return of other publicly traded lodging companies identified in the award agreements. During the year ended December 31, 2020, the grant-date fair value of awards with market vesting conditions were calculated using a Monte Carlo simulation model with the following key assumptions:

Expected holding period			2.92 years
Risk–free rate of return			1.43		%
Expected dividend yield			7.01		%

ESA Management has a savings plan that qualifies under Section 401(k) of the Code for all employees meeting the eligibility requirements of the plan. The plan has an employer-matching contribution of 50 % of the first 6 % of an employee’s contribution, which vests over an employee’s initial three -year service period. The plan also provides for contribution of up to 100 % of eligible employee pretax salary, subject to the Code’s annual deferral limit of $ 19,500 during 2020, $ 19,000 during 2019 and $ 18,500 during 2018. Employer contributions, net of forfeitures, totaled $ 1.8 million, $ 1.9 million and $ 1.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

ESA Management has a non-qualified deferred compensation plan to allow certain eligible employees an option to defer a portion of their compensation on a tax-deferred basis. The plan has an employer-matching contribution of 50 % of the first 6 %

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ESH Hospitality, Inc. (“ESH REIT”) was formed as a limited liability company in the state of Delaware on September 16, 2010 and was converted to a corporation on November 5, 2013. Extended Stay America, Inc. (the “Corporation”), the parent of ESH REIT, was incorporated in the state of Delaware on July 8, 2013. The Corporation owns, and is expected to continue to own, all of the issued and outstanding Class A common stock of ESH REIT, which, as of December 31, 2020 and 2019, represents 59 % and 58 % of the outstanding common stock of ESH REIT, respectively.

A “Paired Share” consists of one share of common stock, par value $ 0.01 per share, of the Corporation, that is attached to and trades as a single unit with one share of Class B common stock, par value $ 0.01 per share, of ESH REIT. Each outstanding share of ESH REIT Class B common stock is attached to and trades with one share of Corporation common stock.

As of December 31, 2020 and 2019, ESH REIT and its subsidiaries owned and leased 563 and 557 hotel properties, respectively, in 40 U.S. states, consisting of approximately 62,700 and 61,900 rooms, respectively. All hotels are leased to wholly-owned subsidiaries of the Corporation (the “Operating Lessees”).

Basis of Consolidation

Use of Estimates —The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Management used significant estimates to determine the estimated useful lives of tangible assets, as well as in the assessment of tangible and intangible assets for impairment. Actual results could differ from those estimates.

Cash and Cash Equivalents —ESH REIT considers all cash on hand, demand deposits with financial institutions and short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. ESH REIT has deposits in excess of $250,000 with financial institutions that are not insured by the Federal Deposit Insurance Corporation. ESH REIT does not believe cash and cash equivalents expose it to significant credit risk.

Property Acquisitions —Identifiable net assets and liabilities acquired in an asset acquisition are recorded at cost, allocated based on their relative fair values on the date of acquisition. Identifiable net assets and liabilities acquired in a business combination are recorded based on their fair value on the date of acquisition. The fair value of acquired land, site improvements, building and improvements and furniture, fixtures and equipment are determined on an “if-vacant” basis considering a variety of factors, including the physical condition and quality of the hotels, estimated rates and valuation assumptions consistent with current market conditions, independent appraisals and other relevant market data obtained in connection with the acquisition of the hotels. Results of operations of acquired hotel properties are included in the accompanying consolidated statements of operations since their dates of acquisition.

Property and Equipment —Property and equipment additions are recorded at cost. Major improvements that extend the life or utility of property or equipment are capitalized and depreciated over a period equal to the shorter of the estimated useful life of the improvement or the remaining estimated useful life of the asset. Ordinary repairs and maintenance are charged to expense as incurred. Depreciation and amortization are recorded on a straight-line basis over the following estimated useful lives:

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Hotel buildings			7 – 49 years
Hotel building improvements			4 – 39 years
Hotel site improvements			3 – 20 years
Hotel furniture, fixtures and equipment			1 – 10 years

Management assesses long-lived assets for potential impairment quarterly, as well as when events or changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The identification of events or changes in circumstances that indicate the carrying value of assets may not be recoverable requires significant judgment. ESH REIT reviews for impairment indicators at the lowest level of identifiable cash flows based on quantitative, qualitative and certain industry-related factors. Quantitative factors include, but are not limited to, hotel property EBITDA, EBITDA margins and EBITDA multiples, and serve to screen assets or asset groups with historical, current or projected operating cash flow losses or deterioration. Qualitative factors include a change in physical condition, economic environment, regulatory environment or primary use, including the evaluation of the asset or group of assets for disposition.

Recoverability of property and equipment is measured by a comparison of the carrying amount of a hotel property or group of hotel properties (grouped under ESH REIT’s leases) to the estimated future undiscounted cash flows expected to be generated by the hotel property or group of hotel properties. Impairment is recognized when estimated future undiscounted cash flows, including expected proceeds from disposition, are less than the carrying value of the hotel property or group of hotel properties. To the extent that a hotel property or group of hotel properties is impaired, the excess carrying amount over estimated fair value is recognized as an impairment charge. Fair value is determined based upon the discounted cash flows of the hotel property or group of hotel properties, bids, quoted market prices or independent appraisals, as considered necessary.

The estimation and evaluation of future cash flows, in particular the holding period for real estate assets and asset composition and/or concentration within real estate portfolios, relies on significant judgments and assumptions regarding holding period, current and future operating performance and current and future market conditions. It is possible that such judgments and/or estimates will change; in particular, the effects of the COVID-19 pandemic could cause economic and market conditions to continue to deteriorate, and if this occurs, or if ESH REIT's expected holding period for real estate assets changes, ESH REIT may recognize impairment charges or losses on sale in future periods reflecting either changes in estimate, circumstance or the estimated market value of assets. During year ended December 31, 2020, ESH REIT recognized an impairment charge of $ 0.7 million (see Note 5).

Intangible Assets —Intangible assets include licenses related to certain internal-use software. Licenses are amortized using the straight-line method over their estimated useful life, which is the remaining non-cancellable term of each respective contract. Intangible assets are reviewed for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. ESH REIT tests for impairment more frequently if events or circumstances change that would more likely than not reduce the fair value of its reporting unit below its carrying amount.

ESH REIT believes that the carrying amount of its intangible assets are recoverable and there are no changes in circumstances that would more likely than not reduce the fair value of its reporting unit below its carrying amount. Therefore, no impairment charges related to intangible assets were recognized during the years ended December 31, 2020, 2019 or 2018. However, if the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends.

Goodwill —Goodwill represents the purchase price in excess of the fair value of net assets acquired in conjunction with the acquisition of ESH REIT's predecessor in 2010. Goodwill is reviewed for impairment quarterly and more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ESH REIT has one operating segment, which is its reporting unit; therefore, management analyzes goodwill associated with all hotels when analyzing for potential impairment. ESH REIT first assesses qualitative factors to determine if it is more likely than not that the fair value of its reporting unit is less than its carrying amount.

ESH REIT believes that the carrying amount of its goodwill is recoverable and there are no changes in circumstances that would more likely than not reduce the fair value of its reporting unit below its carrying amount. Therefore, no impairment charges related to goodwill were recognized during the years ended December 31, 2020, 2019 or 2018. However, if the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate, these events could result in impairment charges in the future. Actual results are subject to a high degree of uncertainty due to the volatility of macroeconomic trends.

Assets Held For Sale —ESH REIT classifies assets as held for sale when management commits to a formal plan to sell the assets, actively seeks a buyer for the assets and the consummation of a sale is considered probable and is expected within

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one year. ESH REIT takes into consideration when determining whether the consummation of a sale is probable the following criteria: (i) whether a purchase and sale agreement has been executed, (ii) whether the buyer has a significant non-refundable deposit at risk and (iii) whether significant financing contingencies exist. Upon designating an asset as held for sale, ESH REIT stops recognizing depreciation expense and records the asset at the lower of its carrying value, including allocable goodwill, or its estimated fair value less estimated costs to sell. Any such adjustment to the carrying value is recognized as an impairment charge.

Discontinued Operations— ESH REIT classifies hotel properties sold or held for sale as discontinued operations when the disposal represents a strategic shift that has (or will have) a major effect on ESH REIT’s operations and financial results. No hotel properties were classified as discontinued operations during the years ended December 31, 2020, 2019 or 2018.

Deferred Financing Costs —Costs incurred in obtaining financing are amortized over the terms of the related loans on a straight-line basis, which approximates the effective interest method. Deferred financing costs are presented in the accompanying consolidated balance sheets as a direct deduction of the carrying amount of the related debt liability, except those incurred under a revolving-debt arrangement, which are presented as a component of other assets. Upon repayment, or in conjunction with a material change in the terms of the underlying debt agreement, remaining unamortized costs are written off as a component of net interest expense. Amortization of deferred financing costs is included as a component of net interest expense (see Note 7).

Revenue Recognition —ESH REIT’s sole source of revenues is rental revenue derived from operating leases with subsidiaries of the Corporation (i.e., all revenues are generated from agreements with related parties (see Note 11)). Rental revenues are recorded on a straight-line basis as they are earned during the lease terms. Rents receivable from Extended Stay America, Inc. on the accompanying consolidated balance sheets represent monthly rental amounts contractually due, while deferred rents receivable from Extended Stay America, Inc. represent the cumulative difference between straight-line rental revenues recognized and rental revenues contractually due. Lease rental payments received prior to rendering services are included in unearned rental revenues from Extended Stay America, Inc. on the accompanying consolidated balance sheets. Variable rental revenues, specifically percentage rental revenues related to hotel revenues of the Operating Lessees, are recognized when such amounts are fixed and determinable (i.e., only when percentage rental revenue thresholds have been achieved).

Fair Value of Financial Instruments —U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments:

Level 1 —Observable inputs, such as quoted prices in active markets at the measurement date for identical assets or liabilities

Level 2 —Significant inputs that are observable, directly or indirectly, such as other quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability

Level 3 —Significant unobservable inputs for which there is little to no market data and for which ESH REIT makes its own assumptions about how market participants would price the asset or liability

Fair value is defined as the price that would be received when selling an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., exit price). In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety has been determined is based on the lowest-level input significant to the fair value measurement. ESH REIT’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

ESH REIT’s financial instruments consist of cash and cash equivalents, deposits, accounts payable and accrued liabilities, term loans, senior notes, its revolving credit facility and certain intercompany facilities whose counterparty is the Corporation. The carrying values of cash and cash equivalents, deposits, accounts payable and accrued liabilities and ESH REIT’s revolving credit facility are representative of their fair values due to the short-term nature or frequent settlement of these instruments. The fair values of term loans and senior notes are determined by comparing current borrowing rates and risk spreads offered in the market to the stated interest rates and spreads on ESH REIT’s instruments or from quoted market prices, when available (see Note 7).

Derivative Instruments —ESH REIT from time to time uses derivative instruments to manage its exposure to interest rate risks. ESH REIT’s primary objective in holding derivatives is to reduce the volatility of cash flows and earnings associated with changes in interest rates. ESH REIT’s derivatives expose it to credit risk to the extent that counterparties may be unable to

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meet the terms of the agreement. ESH REIT seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties. Derivative instruments, including derivative instruments embedded in other contracts, are recorded in the accompanying consolidated balance sheets as either assets or liabilities measured at fair value. Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met (see Note 8). ESH REIT does not enter into derivative instruments for trading or speculative purposes.

Investments —ESH REIT consolidates a subsidiary when it has the ability to direct the activities that most significantly impact the economic performance of the subsidiary. Judgment is required with respect to the consolidation of investments, including partnership and joint venture entities, in terms of the evaluation of control, including assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests that are not controllable through voting interests.

If a subsidiary, affiliate or other entity is a variable interest entity (“VIE”), it is subject to the consolidation framework specifically for VIEs. ESH REIT considers an entity a VIE if equity investors own an interest therein that does not have the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In accordance with Financial Accounting Standards Board (“FASB”) ASC 810, Consolidations , ESH REIT reviews subsidiaries and affiliates, as well as other entities, to determine if (i) they should be considered VIEs, and (ii) whether their consolidation determinations should change based on changes in their characteristics.

Income Taxes —ESH REIT accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, ESH REIT determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. ESH REIT’s deferred tax rates are adjusted to reflect expected future distributions and the deduction allowed upon distribution.

ESH REIT recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, ESH REIT considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If ESH REIT determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, ESH REIT would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. ESH REIT records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) ESH REIT determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, ESH REIT recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

ESH REIT has elected to be taxed as and expects to continue to qualify as a real estate investment trust (“REIT”) under provisions of the Internal Revenue Code (the “Code”). A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding capital gains, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates and generally would be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.

During the years ended December 31, 2020, 2019 and 2018, ESH REIT distributed approximately 100 % of its taxable income and, as a result, incurred minimal current federal income tax. In the future, ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. ESH REIT will incur federal and state income tax at statutory rates if its taxable income is not distributed. Accordingly, ESH REIT expects to distribute approximately 100% of its taxable income for the foreseeable future.

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Comprehensive Income —Comprehensive income includes net income and other comprehensive income, which consists of interest rate cash flow hedge adjustments. Comprehensive income is presented in the accompanying consolidated statements of comprehensive income. Interest rate cash flow hedge adjustments are presented as separate components of consolidated equity.

Equity-Based Compensation— ESH REIT maintains a Long-Term Incentive Plan (“LTIP”), approved by its shareholders. Under the LTIP, ESH REIT may issue to eligible employees or directors equity-based awards in respect of Paired Shares with service, performance or market vesting conditions. ESH REIT recognizes costs related to equity-based awards over their vesting periods. ESH REIT classifies equity-based awards granted in exchange for employee or director services as either equity awards or as liability awards. The classification of an award either as an equity award or a liability award is generally based upon cash settlement options. Equity awards are measured based on their fair value on the date of grant. Liability awards are re-measured to fair value each reporting period. The value of all awards is recognized over the requisite service period, which is the period during which an employee or director is required to provide services in exchange for the award (usually the vesting period). No compensation expense is recognized for awards for which employees or directors do not render the requisite services. All outstanding awards are classified as equity awards.

Segments —ESH REIT’s hotel ownership business represents a single operating segment based on the manner in which ESH REIT manages its business and operations.

Recently Issued Accounting Standards

Reference Rate Reform —In March 2020, the FASB issued an accounting standards update that provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR, subject to meeting certain criteria. ESH REIT adopted this update on March 12, 2020, and the update is effective through December 31, 2022, during which time ESH REIT may elect to apply the optional expedients and exceptions offered under the standard. ESH REIT's variable rate debt and interest rate swap are tied to rates that reference LIBOR (see Notes 7 and 8). As of December 31, 2020, ESH REIT had not applied any of these optional expedients or exceptions. The adoption of this update did not, and is not expected to, have a material effect on ESH REIT's consolidated financial statements.

Income Taxes —In December 2019, the FASB issued an accounting standards update which simplifies the accounting for income taxes. The update amends several topics including interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim-period tax accounting. ESH REIT adopted this update on January 1, 2021. The adoption of this update is not expected to have a material effect on ESH REIT’s consolidated financial statements.

Fair Value Measurement— In August 2018, the FASB issued an accounting standards update which modifies the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement . ESH REIT adopted this update on January 1, 2020. The adoption of this update did not have a material effect on ESH REIT's consolidated financial statements.

Intangibles-Goodwill and Other—Internal-Use Software— In August 2018, the FASB issued an accounting standards update which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ESH REIT adopted this update on January 1, 2020, using a prospective transition method. The adoption of this update did not have a material effect on ESH REIT's consolidated financial statements.

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Basic net income per share is computed by dividing net income available to Class A and Class B common shareholders by the weighted-average number of shares of unrestricted Class A and Class B common stock outstanding, respectively. Diluted net income per share is computed by dividing net income available to Class A and Class B common shareholders, as adjusted for potentially dilutive securities, by the weighted-average number of shares of unrestricted Class A and Class B common stock outstanding, respectively, plus potentially dilutive securities. Dilutive securities include certain equity-based awards (see Note 13) and are included in the calculation provided that the inclusion of such securities is not anti-dilutive.

The calculations of basic and diluted net income per share, including a reconciliation of the numerators and denominators, are as follows (in thousands, except per share data):

			Year Ended December 31,
			2020						2019						2018
Numerator:
Net income			$	175,868					$	225,887					$	230,129
Less preferred dividends			( 16 )						( 16 )						( 16 )
Net income available to ESH Hospitality, Inc. common shareholders			$	175,852					$	225,871					$	230,113
Class A:
Net income available to ESH Hospitality, Inc. Class A common shareholders - basic			$	102,872					$	129,460					$	131,039
Less amounts available to ESH Hospitality, Inc. Class B shareholders assuming conversion			( 95 )						( 82 )						( 128 )
Net income available to ESH Hospitality, Inc. Class A common shareholders - diluted			$	102,777					$	129,378					$	130,911
Class B:
Net income available to ESH Hospitality, Inc. Class B common shareholders - basic			$	72,980					$	96,411					$	99,074
Amounts available to ESH Hospitality, Inc. Class B shareholders assuming conversion			95						82						128
Net income available to ESH Hospitality, Inc. Class B common shareholders - diluted			$	73,075					$	96,493					$	99,202
Denominator:
Class A:
Weighted-average number of ESH Hospitality, Inc. Class A common shares outstanding - basic and diluted			250,494						250,494						250,494
Class B:
Weighted-average number of ESH Hospitality, Inc. Class B common shares outstanding - basic			$	177,708					$	186,546					$	189,389
Dilutive securities			395						276						432
Weighted-average number of ESH Hospitality, Inc. Class B common shares outstanding - diluted			$	178,103					$	186,822					$	189,821
Net income per ESH Hospitality, Inc. common share - Class A - basic			$	0.41					$	0.52					$	0.52
Net income per ESH Hospitality, Inc. common share - Class A - diluted			$	0.41					$	0.52					$	0.52
Net income per ESH Hospitality, Inc. common share - Class B - basic			$	0.41					$	0.52					$	0.52
Net income per ESH Hospitality, Inc. common share - Class B - diluted			$	0.41					$	0.52					$	0.52

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ACQUISITIONS

2019 Acquisition — On November 12, 2019, ESH REIT acquired a 121 -room operating hotel from Crestwood Suites of Lakeland, LLC for $ 10.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The majority of the purchase price was allocated to building and improvements, with estimated useful lives ranging from five to 44 years.

2018 Acquisition — On May 30, 2018, ESH REIT acquired a 115 -room operating hotel from Legacy Rock Hill, LLC for $ 13.0 million. Other than ordinary components of prorated net working capital, no liabilities were assumed in the purchase. The majority of the purchase price was allocated to building and improvements, with estimated useful lives ranging from four to 49 years. Prior to its acquisition by ESH REIT, the hotel opened in late 2017.

No hotels were acquired during the year ended December 31, 2020. During the years ended December 31, 2020, 2019 and 2018, acquired hotel properties contributed rental revenues, total operating expenses and income before income tax expense as follows (in thousands):

			Years ended December 31,
			2020						2019						2018
Rental revenues from Extended Stay America, Inc.			$	2,189					$	1,087					$	728
Total operating expenses			1,525						882						475
Income before income tax expense			664						205						253

DISPOSITIONS

The table below summarizes hotel dispositions for the prior three years (in thousands, except number of hotels and number of rooms). No dispositions were reported as discontinued operations.

Year						Location			Month Sold			Number of Hotels			Number of Rooms			Net Proceeds			Gain (Loss) on Sale
2020						California			November			1			146			$	63,556		$	52,196
2018						Various			November			14			1,386			$	34,855		$	( 14,930 )
2018						Various			September			16			1,677			$	60,710		$	( 17,025 )
2018						Various			September			16			1,772			$	58,144		$	( 8,934 )
2018						Various			February			25			2,420			$	111,156		$	4,269
2018						Texas			March			1			101			$	44,090		$	30,992

During the years ended December 31, 2020, 2019 and 2018, disposed hotel properties contributed total rental revenues, total operating expenses and income before income tax expense as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Rental revenues from Extended Stay America, Inc.			$	2,358					$	3,212					$	23,595
Total operating expenses			679						736						16,518
Income before income tax expense			1,679						2,476						7,077

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Net investment in property and equipment as of December 31, 2020 and 2019, consists of the following (in thousands):

			December 31, 2020						December 31, 2019
Hotel properties:
Land and site improvements (1)			$	1,248,807					$	1,230,598
Building and improvements			2,914,683						2,824,061
Furniture, fixtures and equipment (2)			790,584						751,417
Total hotel properties			4,954,074						4,806,076
Development in process (3)			46,496						70,864
Other			1,000						1,675
Total cost			5,001,570						4,878,615
Less accumulated depreciation			( 1,540,358 )						( 1,372,595 )
Property and equipment—net			$	3,461,212					$	3,506,020

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(1) Includes finance lease asset of $ 4.0 million and $ 3.2 million as of December 31, 2020 and 2019, respectively.

(2) Includes finance lease asset of $ 0.4 million and $ 0 as of December 31, 2020 and 2019, respectively.

(3) Includes finance lease asset of $ 0.0 million and $ 0.8 million as of December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, development in process consisted of 8 and 15 land parcels, respectively, that were in various phases of construction and/or development. As of December 31, 2020, ESH REIT expects to delay commencement of construction at four of these locations as a result of current market uncertainty.

During the years ended December 31, 2020, 2019 and 2018, the following owned, newly constructed hotels were opened under the Extended Stay America brand:

Opening Date			Location			Number of Hotels			Number of Room
December 2020			Florida			1			124
November 2020			Florida			1			144
August 2020			Florida			1			124
June 2020			Various			2			248
April 2020			South Carolina			1			120
March 2020			Florida			1			120
December 2019			Various			2			260
September 2018			South Carolina			1			107

During the years ended December 31, 2020, 2019 and 2018, newly-built hotels contributed rental revenues, total operating expenses and income before income tax expense as follows (in thousands):

						Year Ended December 31,
						2020						2019						2018
Rental revenues from Extended Stay America, Inc.						$	10,704					$	1,385					81
Total operating expenses						5,730						909						79
Income before income tax expense						4,974						476						2

During the year ended December 31, 2020, ESH REIT recognized an impairment charge of $ 0.7 million related to an undeveloped land parcel. ESH REIT used Level 2 observable inputs, including a non-binding bid to sell the undeveloped land parcel, and Level 3 unobservable inputs, including estimated transaction costs, to determine the impairment charge. No impairment charges were recognized for the years ended December 31, 2019 and 2018.

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			December 31, 2020
			Gross Carrying Amount						Accumulated Amortization						Net Book Value
Definite-lived intangible assets—software licenses			$	10,546					$	( 2,005 )					$	8,541
Goodwill			43,878						—						43,878
Total intangible assets and goodwill			$	54,424					$	( 2,005 )					$	52,419

			December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Net Book Value
Definite-lived intangible assets—software licenses			$	10,353					$	( 763 )					$	9,590
Goodwill			44,012						—						44,012
Total intangible assets and goodwill			$	54,365					$	( 763 )					$	53,602

The remaining weighted-average amortization period for amortizing intangible assets is approximately seven years as of December 31, 2020. Estimated future amortization expense for amortizing intangible assets is as follows (in thousands):

Years Ending December 31,
2021			$	1,250
2022			1,250
2023			1,250
2024			1,250
2025			1,250
Thereafter			2,291
Total			$	8,541

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During the years ended December 31, 2020 and 2019, the following debt transactions occurred (in thousands):

			December 31, 2020						December 31, 2019
Debt, net of deferred financing costs and debt discounts - beginning of year (1)			$	2,632,636					$	2,395,507
Additions:
Proceeds from senior notes			—						750,000
Proceeds from revolving credit facility			350,000						—
Amortization and write-off of deferred financing costs and debt discount (2)			7,530						12,967
Deductions:
Payments on term loan facilities			( 6,309 )						( 507,261 )
Payments on revolving credit facility			( 350,000 )						—
Payments of deferred financing costs (2)			—						( 18,577 )
Debt, net of deferred financing costs and debt discounts - end of year (1)			$	2,633,857					$	2,632,636

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(1) Excludes finance lease obligations.

(2) Excludes amortization and payments of deferred financing costs related to the revolving credit facility.

Summary — ESH REIT’s outstanding debt, net of unamortized debt discount and unamortized deferred financing costs, as of December 31, 2020 and 2019, consists of the following (dollars in thousands):

									Carrying Amount												Unamortized Deferred Financing Costs
Loan			Stated Amount						December 31, 2020						December 31, 2019						December 31, 2020						December 31, 2019						Stated Interest Rate						Maturity Date
Term loan facility
ESH REIT Term Facility			$	630,909					$	621,351		(1)			$	627,368		(1)			$	7,684					$	9,030					LIBOR (2) + 2.00 %						9/18/2026			(3)
Senior notes
2025 Notes			1,300,000						1,294,301			(4)			1,292,986			(4)			12,232						15,055						5.25 %						5/1/2025
2027 Notes			750,000						750,000						750,000						11,879						13,633						4.63 %						10/1/2027
Revolving credit facility
ESH REIT Revolving Credit Facility			350,000						—						—						2,061			(5)			2,606			(5)			LIBOR (2) + 2.00 %						9/18/2024
Unsecured Intercompany Facility
ESH REIT Intercompany Facility			75,000						—						—						—						—						5.00 %						9/18/2026
Total									$	2,665,652					$	2,670,354					$	33,856					$	40,324

______________________

(1) The ESH REIT Term Facility (defined below) is presented net of an unamortized debt discount of $ 1.7 million and $ 2.0 million as of December 31, 2020 and 2019, respectively.

(2) As of December 31, 2020 and 2019, one-month LIBOR was 0.14 % and 1.76 %, respectively. As of December 31, 2020 and 2019, $ 100.0 million and $ 200.0 million, respectively, of the ESH REIT Term Facility was subject to an interest rate swap at a fixed rate of 1.175 %.

(3) Amortizes in equal quarterly installments of $ 1.6 million. In addition to scheduled amortization, subject to certain exceptions, annual mandatory prepayments of up to 50 % of Excess Cash Flow, as defined, may be required under the ESH REIT Term Facility. Annual mandatory prepayments for a given fiscal year are due during the first quarter of the following fiscal year. No mandatory prepayments are required in the first quarter of 2021 based on ESH REIT's Excess Cash Flow for the year ended December 31, 2020.

(4) The 2025 Notes (defined below) are presented net of an unamortized discount of $ 5.7 million and $ 7.0 million as of December 31, 2020 and 2019, respectively.

(5) Unamortized deferred financing costs related to the revolving credit facility are included in other assets in the accompanying consolidated balance sheets.

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ESH REIT Credit Facilities

ESH REIT’s credit agreement, as may be amended and supplemented from time to time, provides for senior secured credit facilities (collectively, the “ESH REIT Credit Facilities”) which consist of a $ 630.9 million senior secured term loan facility (the “ESH REIT Term Facility”) and a $ 350.0 million senior secured revolving credit facility (the “ESH REIT Revolving Credit Facility”). Subject to the satisfaction of certain criteria, borrowings under the ESH REIT Credit Facilities may be increased by an amount of up to $ 600.0 million, plus additional amounts, so long as, after giving effect to the incurrence of such incremental facility and the application of proceeds thereof, ESH REIT’s pro-forma senior loan-to-value ratio is less than or equal to 45 %.

Obligations under the ESH REIT Credit Facilities are guaranteed by certain existing and future material domestic subsidiaries of ESH REIT, other than those owning real property, subject to customary exceptions. Obligations under the ESH REIT Credit Facilities are secured, subject to certain exceptions, including an exception for real property, by a first-priority security interest in substantially all of the assets of ESH REIT and the guarantors.

ESH REIT Term Facility — The ESH REIT Term Facility bears interest at a rate equal to (i) LIBOR plus 1.75 % for any period during which ESH REIT maintains a public corporate family rating better than or equal to BB (with a stable or better outlook) from S&P and Ba3 (with a stable or better outlook) from Moody’s (a “Level 1 Period”) or LIBOR plus 2.00 % for any period other than a Level 1 Period; or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50 % or (C) the one-month adjusted LIBOR rate plus 1.00 %), plus 0.75 % during a Level 1 Period or 1.00 % for any period other than a Level 1 Period. ESH REIT has the option to voluntarily prepay outstanding loans under the ESH REIT Term Facility at any time without penalty.

ESH REIT Revolving Credit Facility — Borrowings under the ESH REIT Revolving Credit Facility bear interest at a rate equal to (i) LIBOR plus a spread that ranges from 1.50 % to 2.00 % based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined, or (ii) a base rate (determined by reference to the highest of (A) the prime lending rate, (B) the overnight federal funds rate plus 0.50 %, or (C) the one-month adjusted LIBOR rate plus 1.00 %) plus a spread that ranges from 0.50 % to 1.00 % based on ESH REIT’s Consolidated Total Net Leverage Ratio, as defined. ESH REIT incurs a fee of 0.30 % or 0.175 % on the unutilized revolver balance based on the amount outstanding under the facility. ESH REIT is also required to pay customary letter of credit fees and agency fees. The ESH REIT Revolving Credit Facility provides for the issuance of up to $ 50.0 million of letters of credit. As of December 31, 2020, ESH REIT had no letters of credit outstanding and available borrowing capacity of $ 350.0 million under the facility.

The ESH REIT Revolving Credit Facility is subject to a springing financial covenant whereby the senior loan-to-value ratio may not exceed 45 % when the aggregate principal amount of borrowings and letters of credit under the ESH REIT Revolving Credit Facility, excluding up to $ 30.0 million of letters of credit, is equal to or greater than 35 % of the aggregate available principal amount of the ESH REIT Revolving Credit Facility on the applicable fiscal quarter end date.

In March 2020, ESH REIT borrowed the full available capacity of $ 350.0 million under the ESH REIT Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertainty in business markets. In August 2020, ESH REIT repaid the full outstanding balance under the ESH REIT Revolving Credit Facility. As of December 31, 2020, the outstanding balance under the facility was $ 0 .

ESH REIT 2025 Notes

In May 2015 and March 2016, ESH REIT issued $ 500.0 million and $ 800.0 million, respectively, of its 5.25 % senior notes due in May 2025 (the “2025 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, in private placements pursuant to Rule 144A of the Securities Act of 1933, as amended. ESH REIT may redeem the 2025 Notes at any time, in whole or in part, at a redemption price equal to 102.625 % of the principal amount, declining annually to 100 % of the principal amount from May 1, 2023 and thereafter, plus accrued and unpaid interest. Upon a Change of Control, as defined, holders of the 2025 Notes have the right to require ESH REIT to redeem the 2025 Notes at 101 % of the principal amount, plus accrued and unpaid interest.

The 2025 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the ESH REIT Credit Facilities. The 2025 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2025 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.

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ESH REIT 2027 Notes

In September 2019, ESH REIT issued $ 750.0 million of its 4.625 % senior notes due in 2027 (the “2027 Notes”) under an indenture with Deutsche Bank Trust Company Americas, as trustee, at a price equal to 100 % of par value in a private placement pursuant to Rule 144A of the Securities Act of 1933, as amended. ESH REIT may redeem the 2027 Notes at any time on or after October 1, 2022, in whole or in part, at a redemption price equal to 102.313 % of the principal amount, declining annually to 100 % of the principal amount from October 1, 2024 and thereafter, plus accrued and unpaid interest. Prior to October 1, 2022, ESH REIT may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount, plus a “make-whole” premium, as defined, plus accrued and unpaid interest. Prior to October 1, 2022, subject to certain conditions, ESH REIT may redeem up to 35 % of the aggregate principal amount of the 2027 Notes at a redemption price equal to 101 % of the aggregate principal amount, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings, provided 65 % of the original amount of the principal remains outstanding after the occurrence of each such redemption. Upon a Change of Control, as defined, holders of the 2027 Notes have the right to require ESH REIT to redeem the 2027 Notes at 101 % of the principal amount, plus accrued and unpaid interest.

The 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of ESH REIT’s subsidiaries that guarantee ESH REIT’s obligations under the ESH REIT Credit Facilities. The 2027 Notes are not guaranteed by the Corporation or any of its subsidiaries that lease ESH REIT’s properties or its subsidiaries that engage in franchising or management activities or own intellectual property. The 2027 Notes rank equally in right of payment with ESH REIT’s existing and future senior unsecured indebtedness, and senior in right of payment to all future subordinated indebtedness, if any. The 2027 Notes are effectively junior to any of ESH REIT’s secured indebtedness to the extent of the value of the assets securing such indebtedness.

ESH REIT Intercompany Facility

In August 2016, ESH REIT, as borrower, and the Corporation, as lender, entered into an unsecured intercompany credit facility, as may be amended and supplemented from time to time (the “ESH REIT Intercompany Facility”). Subject to certain conditions, the principal amount of the ESH REIT Intercompany Facility may be increased up to an amount that shall not exceed the greater of (i) $ 300.0 million and (ii) an unlimited amount so long as the incremental loan-to-value ratio, determined on a pro-forma basis as of the last day of the most recently ended test period, as if any incremental loans available under such incremental commitments had been outstanding on the last day of such period, and, in each case, without netting the cash proceeds of any such incremental loans, does not exceed 5.0 %. Loans under the ESH REIT Intercompany Facility bear interest at an annual rate of 5.0 %. ESH REIT has the option to prepay outstanding balances under the facility without penalty. As of December 31, 2020 and 2019, the amount outstanding under the facility was $ 0 .

Covenants

The ESH REIT Credit Facilities, the 2027 Notes, the 2025 Notes and the ESH REIT Intercompany Facility contain a number of restrictive covenants that, among other things and subject to certain exceptions, limit ESH REIT’s ability and the ability of its subsidiaries to engage in certain transactions. In addition, the ESH REIT Revolving Credit Facility contains a financial covenant that, subject to certain conditions, requires compliance with a senior loan-to-value ratio. The agreements governing ESH REIT’s indebtedness also contain certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, cross-defaults to certain other indebtedness and, in the case of the ESH REIT Credit Facilities and the ESH REIT Intercompany Facility, certain material operating leases and management agreements. As of December 31, 2020, ESH REIT was in compliance with all covenants under its debt agreements.

ESH REIT’s continued compliance with these covenants could be impacted by current or future economic conditions associated with the COVID-19 pandemic. ESH REIT's failure to maintain compliance with its debt covenants or to pay debt obligations as they become due would give rise to a default under one or more of the agreements governing its indebtedness, and could entitle the lenders under the defaulted agreements to accelerate the maturity of the amounts thereunder, which could raise substantial doubt about ESH REIT's ability to continue as a going concern. ESH REIT may seek covenant waivers or amendments, though there is no certainty that it would be successful in such efforts.

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Future Maturities of Debt — The future maturities of debt as of December 31, 2020, are as follows (in thousands):

Years Ending December 31,
2021			$	6,309		(1)
2022			6,309			(1)
2023			6,309			(1)
2024			6,309			(1)
2025			1,306,309			(1)
Thereafter			1,341,477			(1)
Total			$	2,673,022

______________________

(1) Under the ESH REIT Term Facility, annual mandatory prepayments of up to 50 % of Excess Cash Flow, as defined, may be required under the ESH REIT Term Facility. Annual mandatory prepayments for a given fiscal year are due during the first quarter of the following fiscal year. No mandatory prepayments are required in the first quarter of 2021 based on ESH REIT's Excess Cash Flow for the year ended December 31, 2020.

Interest Expense, net —The components of net interest expense during the years ended December 31, 2020, 2019 and 2018, are as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Contractual interest (1)			$	121,032					$	116,497					$	115,778
Amortization of deferred financing costs and debt discount			8,091						7,947						7,895
Debt extinguishment and other costs (2)			883						8,112						2,847
Interest income (3)			( 1,514 )						( 3,601 )						( 1,775 )
Total			$	128,492					$	128,955					$	124,745

______________________

(1) Net of capitalized interest of $ 2.9 million, $ 2.2 million and $ 0.5 million, respectively.

(2) Includes interest expense on finance leases (See Note 12) and unused facility fees.

(3) For the year ended December 31, 2020, includes $ 0.3 million of interest income from the Corporation Intercompany Facility (see Note 11).

ESH REIT is a counterparty to a floating-to-fixed interest rate swap at a fixed rate of 1.175 % and a floating rate of one-month LIBOR to manage its exposure to interest rate risk on a portion of the ESH REIT Term Facility. The notional amount of the interest rate swap as of December 31, 2020 was $ 100.0 million. The notional amount decreases by an additional $ 50.0 million every six months until the swap’s maturity in September 2021.

For the year ended December 31, 2020, ESH REIT paid interest of $ 0.6 million and for each of the years ended December 31, 2019 and 2018, ESH REIT received proceeds of $ 2.8 million that offset interest expense. As of December 31, 2020, $ 0.5 million of interest expense is expected to be recognized through the swap’s maturity.

The table below presents the amounts and classification on ESH REIT’s consolidated financial statements (in thousands):

			(Accrued liabilities) other assets			Accumulated other comprehensive income, net of tax												Interest expense (income), net
As of December 31, 2020			$	( 525 )		$	( 526 )		(1)
As of December 31, 2019			$	831		$	830		(2)
For the year ended December 31, 2020																		$	643
For the year ended December 31, 2019																		$	( 2,842 )
For the year ended December 31, 2018																		( 2,765 )

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_______________________________

(1) Changes during the year ended December 31, 2020, on a pre-tax basis, consisted of changes in fair value of $( 1.4 ) million.

Income (loss) before income tax expense for the years ended December 31, 2020, 2019 and 2018 consists of the following (in thousands):

			Year Ended December 31,
			2020						2019						2018
U.S.			$	175,887					$	225,952					$	231,266
Canada			148						310						( 340 )
Total			$	176,035					$	226,262					$	230,926

The components of income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Year Ended December 31,
			2020						2019						2018
Federal (including foreign):
Current			$	—					$	—					$	715
State:
Current			167						384						97
Deferred			—						( 9 )						( 15 )
Total			$	167					$	375					$	797

The differences between income tax expense at the effective tax rate and the statutory U.S. federal income tax rate for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Year Ended December 31,
			2020												2019												2018
Tax at statutory rate			$	36,967					21.0		%				$	47,515					21.0		%				$	48,494					21.0		%
State income tax			167						0.1						375						0.2						82						—
Nontaxable ESH REIT income			( 36,920 )						( 21.0 )						( 47,509 )						( 21.0 )						( 48,116 )						( 20.8 )
Other permanent differences			( 47 )						—						( 6 )						—						( 378 )						( 0.2 )
Other - net			—						—						—						—						715						0.3
Income tax expense - net			$	167					0.1		%				$	375					0.2		%				$	797					0.3		%

The significant components of deferred tax assets and deferred tax liabilities as of December 31, 2020 and 2019, which are included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets, consist of the following (in thousands):

			December 31, 2020						December 31, 2019
Deferred tax assets:
Net operating loss carryforwards			$	747					$	785
Other			8						2
Total deferred tax assets:			755						787
Valuation allowance			( 747 )						( 785 )
Net deferred tax assets:			8						2
Deferred tax liabilities:
Other			( 20 )						( 13 )
Total net deferred tax liabilities:			$	( 12 )					$	( 11 )

ESH REIT has elected to be taxed and expects to continue to qualify as a REIT under Sections 856 through 860 of the Code. A REIT is a legal entity that holds real estate assets and is generally not subject to federal and state income taxes. In order to maintain qualification as a REIT, ESH REIT is required to distribute at least 90% of its taxable income, excluding net

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capital gain, to its shareholders each year. In addition, ESH REIT must meet a number of complex organizational and operational requirements. If ESH REIT were to fail to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates and generally would be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which it lost its REIT qualification. ESH REIT intends to distribute its taxable income to the extent necessary to optimize its tax efficiency including, but not limited to, maintaining its REIT status, while retaining sufficient capital for its ongoing needs. Even in qualifying as a REIT, ESH REIT may be subject to state and local taxes in certain jurisdictions, and is subject to federal income and excise taxes on undistributed income.

During the years ended December 31, 2020, 2019 and 2018, ESH REIT recognized a dividend paid deduction for 100 % of its taxable income, incurring no federal income tax and minimal state and local income taxes. The following table summarizes ESH REIT’s taxable income prior to distributions, cash distributions to its shareholders and the prior year deduction of cash distributions for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Year Ended December 31,
			2020						2019						2018
Taxable income prior to distribution			$	178,030					$	233,433					$	297,211
Cash distributions (1)			$	218,263					$	240,600					$	277,075
Prior year deduction of cash distributions (2)			$	20,225					$	26,514					$	2,829

_________________________________

(1) Excludes accumulated distributions on RSUs settled.

(2) Cash distributions that were previously deducted to offset taxable income in the year prior.

All cash distributions for the years ended December 31, 2020, 2019 and 2018 were considered ordinary taxable income. The 2020 distribution includes a special distribution of $ 149.8 million declared in December 2020 and paid in January 2021. Approximately $ 129.8 million of the special distribution was deductible to ESH REIT in 2020; the remaining $ 20.0 million will be deducted in 2021. The special distribution will be subject to current taxation to the Corporation as dividend income in 2021 at the time of receipt.

As of December 31, 2020, the tax basis of ESH REIT’s property and equipment was $ 21.8 million greater than the book basis.

ESH REIT evaluates its open tax positions using the criteria established by ASC 740, Income Taxes. ESH REIT has concluded that it has not taken any material tax positions that are not more likely than not to be sustained upon examination and has therefore not recorded any reserves for uncertain tax positions. ESH REIT’s federal income tax returns for the tax years 2017 to present may be subject to examination by the Internal Revenue Service and other taxing authorities. As of December 31, 2020, a subsidiary of ESH REIT was under examination by the Canadian Revenue Agency for the tax years 2014 through 2017. As this audit is still in process, the timing of the resolution and any payments that may be required cannot be determined at this time. ESH REIT believes that, to the extent a liability may exist, it is not material as of December 31, 2020.

ESH REIT has authorized 4,300.0 million shares of Class A common stock, par value $ 0.01 per share, of which 250.5 million shares were issued and outstanding as of December 31, 2020 and 2019. All issued and outstanding shares of ESH REIT Class A common stock were held by the Corporation as of December 31, 2020 and 2019. ESH REIT has authorized 7,800.0 million shares of Class B common stock, par value $ 0.01 per share, of which 177.6 million and 179.5 million shares were issued and outstanding as of December 31, 2020 and 2019, respectively. Each share of ESH REIT’s outstanding Class B common stock is attached to and trades as a single unit with one share of the Corporation’s common stock.

ESH REIT has authorized 350.0 million shares of preferred stock, par value $ 0.01 per share, of which no shares were issued or outstanding as of December 31, 2020 and 2019. Additionally, ESH REIT has authorized 125 shares of preferred stock, no par value, all of which were issued and outstanding as of December 31, 2020 and 2019. The outstanding ESH REIT preferred stock pays dividends at a rate of 12.5 % per year. With respect to dividends and distributions upon ESH REIT’s liquidation, winding-up or dissolution, the 12.5 % preferred stock ranks senior to the ESH REIT Class A and Class B common stock. The liquidation preference of the 12.5 % preferred stock is $ 1,000 per share plus any accumulated unpaid dividends. Shares of 12.5 % preferred stock may be redeemed, in whole or in part, at any time for a per share amount equal to the liquidation preference plus all accumulated unpaid dividends.

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ESH REIT paid cash distributions totaling $ 68.9 million (of which $ 40.1 million was paid to the Corporation), $ 241.0 million (of which $ 137.8 million was paid to the Corporation) and $ 277.8 million (of which $ 157.8 million was paid to the Corporation) during the years ended December 31, 2020, 2019 and 2018, respectively.

On December 22, 2020, the Board of Directors of ESH REIT declared a special cash distribution of $ 0.35 per share on its Class A and Class B common shareholders. The special distribution totals $ 149.8 million, $ 87.7 million of which is payable to the Corporation and is included in Due to Extended Stay America, Inc., and $ 62.1 million of which is payable to Class B common shareholders and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets as of December 31, 2020. ESH REIT paid the distribution on January 20, 2021 to shareholders of record as of January 6, 2021.

Paired Share Repurchase Program —In December 2015, the Boards of Directors of the Corporation and ESH REIT authorized a combined Paired Share repurchase program. As a result of several increases in authorized amounts and program extensions, including a program extension authorized in December 2020, effective January 1, 2021, the combined Paired Share repurchase program authorizes the Corporation and ESH REIT to purchase up to $ 550.0 million in Paired Shares through December 31, 2021. Repurchases may be made at management’s discretion from time to time in the open market, in privately negotiated transactions or by other means (including through Rule 10b5-1 trading plans). As of December 31, 2020, ESH REIT repurchased and retired 28.6 million ESH REIT Class B common shares for $ 166.4 million, including transaction fees, and $ 101.1 million remained available under the combined Paired Share repurchase program.

Revenues and Expenses

Leases and Rental Revenues —All revenues are generated as a result of, and earned from, three operating leases with related parties. The counterparty to each lease agreement is a subsidiary of the Corporation. Fixed and variable rental revenues for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):

			Years Ending December 31,
			2020						2019						2018
Fixed rental revenues			$	479,211					$	472,523					$	450,277
Variable rental revenues (1)			83,598						177,375						217,151

______________________

(1) Regardless of whether cash rental payments are received, ESH REIT only recognizes revenue when a lessee's revenue exceeds specific thresholds stated in the lease.

Each lease agreement, which had an initial term that expired in October 2018, was renewed effective November 1, 2018, for a five -year term that expires in October 2023. Each lease contains an automatic five -year renewal, unless lessee provides notice that it will not renew no later than thirty months prior to expiration. Upon renewal, minimum and percentage rents will be adjusted to reflect then-current market terms. Future fixed rental payments to be received under current remaining noncancellable lease terms are as follows (in thousands):

Years Ending December 31,
2021			$	483,113
2022			495,473
2023			423,106
Total			$	1,401,692

Overhead Expenses— The Corporation incurs costs under a services agreement between the Corporation and ESH REIT for certain overhead services performed on each entities’ behalf. The services relate to executive management, accounting, financial analysis, training and technology. For the years ended December 31, 2020, 2019 and 2018, ESH REIT incurred $ 10.2 million, $ 9.9 million and $ 9.8 million, respectively, which is included in general and administrative expenses in the accompanying consolidated statements of operations, related to these services. Expenses incurred under this services agreement include expenses related to certain employees that participate in the Corporation’s long-term incentive plan (as described in Note 13). Such charges were $ 1.1 million, $ 0.9 million and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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Capital Transactions

Corporation Intercompany Facility— In July 2020, the Corporation, as borrower, and ESH REIT, as lender, entered into an unsecured credit facility (the “Corporation Intercompany Facility”). Under the Corporation Intercompany Facility, the Corporation may borrow up to $ 150.0 million. Loans under the facility bear interest at an annual rate of 4.50 %. In addition to paying interest on outstanding principal, the Corporation is required to pay a commitment fee to ESH REIT of 0.25 % on the unutilized facility balance. There is no scheduled amortization under the facility and the facility matures on July 2, 2025. Obligations under the Corporation Intercompany Facility and guarantees thereof are unsecured and fully subordinated to the obligations of the Corporation under its revolving credit facility. The Corporation has the option to prepay outstanding balances under the facility without penalty. During the year ended December 31, 2020, the Corporation borrowed and fully repaid $ 20.0 million under the Corporation Intercompany Facility, and ESH REIT recognized $ 0.3 million of interest income related to the facility (see Note 7). As of December 31, 2020 the outstanding balance under the facility was $ 0 .

ESH REIT Intercompany Facility —As of December 31, 2020 and 2019, there were no outstanding balances owed by ESH REIT to the Corporation under the ESH REIT Intercompany Facility, and no interest expense related to the ESH REIT Intercompany Facility was incurred during the years ended December 31, 2020, 2019 and 2018. ESH REIT is able to borrow under the ESH REIT Intercompany Facility up to $ 300.0 million, plus additional amounts, in each case, subject to certain conditions (see Note 7).

Distributions— During the years ended December 31, 2020, 2019 and 2018, ESH REIT paid distributions of $ 40.1 million, $ 137.8 million and $ 157.8 million, respectively, to the Corporation in respect of the Class A common stock of ESH REIT. As of December 31, 2020, a distribution of $ 87.7 million, declared on December 22, 2020, is payable to the Corporation and is included in Due to Extended Stay America, Inc. on the consolidated balance sheets (see Note 10).

Issuance of Common Stock— During the year ended December 31, 2020, 2019 and 2018, ESH REIT received $ 0.9 million, $ 1.4 million and $ 2.6 million, respectively, for the issuance of 0.2 million, 0.2 million and 0.4 million shares of Class B common stock, each of which was attached to a share of Corporation common stock to form a Paired Share, used to settle vested restricted stock units (“RSUs”).

As of December 31, 2020, approximately 178,000 equity-based awards issued by the Corporation have vested but have not been settled, for which ESH REIT has recognized a receivable of $ 0.7 million, which is included as a component of due to Extended Stay America, Inc., net on the accompanying consolidated balance sheets. In March 2021, in accordance with the awards’ settlement provisions, ESH REIT expects to issue and be compensated for the issuance of the corresponding shares of Class B common stock, each of which will be attached to a share of common stock of the Corporation to form a Paired Share.

As of December 31, 2019, approximately 83,000 equity-based awards issued by the Corporation had vested but had not been settled, for which ESH REIT had recognized a receivable of $ 0.3 million, which is included as a component of due to Extended Stay America, Inc. on the accompanying consolidated balance sheets. In March 2020, in accordance with the awards’ settlement provisions, ESH REIT issued and was compensated for the issuance of the corresponding shares of Class B common stock, each of which was attached to a share of common stock of the Corporation to form a Paired Share.

Related Party Transaction Balances

Related party transaction balances as of December 31, 2020 and 2019, include the following (in thousands):

			December 31, 2020						December 31, 2019
Leases:
Rents receivable (1)			$	3,941					$	1,572
Deferred rents receivable (2)			$	39,135					$	28,917
Unearned rental revenues (1)			$	—					$	( 38,770 )
Working capital and other:
Ordinary working capital (3)			$	( 5,806 )					$	( 12,160 )
Equity awards receivable (4)			688						322
Distribution payable (5)			$	( 87,673 )					—
Total working capital and other, net (6)			$	( 92,791 )					$	( 11,838 )

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(1) Rents receivable relate to percentage rents. As of December 31, 2019, unearned rental revenues relate to prepaid January 2020 fixed minimum rent.

(2) Revenues recognized in excess of cash rents received.

(3) Disbursements and/or receipts made by the Corporation or ESH REIT on the other entity’s behalf and amounts payable/receivable for certain transactions between the Corporation and ESH REIT. Includes overhead costs incurred by the Corporation on ESH REIT’s behalf.

(4) Amounts related to restricted stock units not yet settled or issued.

(5) Special distribution declared in December 2020 and paid in January 2021.

(6) Outstanding balances are typically repaid within 30 days.

Lease Commitments —ESH REIT is a tenant under long-term ground leases at five of its hotel properties. Three of these leases are operating leases and two are finance leases. The ground lease agreements terminate at various dates between 2023 and 2096 and several of the agreements include multiple renewal options for generally five or ten year periods. As ESH REIT is reasonably certain that it will exercise the options to extend its ground leases, fixed payments associated with the extensions are included in the measurement of related right-of-use assets and lease liabilities. Additionally, as of December 31, 2020, ESH REIT leased certain technology equipment located at its hotel sites under finance leases.

Operating lease costs related to ground leases are included in hotel operating expenses in the consolidated statements of operations. Finance lease interest costs are included in interest expense, net in the consolidated statements of operations (see Note 7) or, when pertaining to assets under development, are capitalized and included in property and equipment, net on the consolidated balance sheets (see Note 5). As ESH REIT's finance lease right-of-use assets pertain to land and land under development, and as ESH REIT elected the practical expedient to retain prior lease classification upon adoption of ASC 842, Leases, no amortization costs related to finance leases were incurred during the year ended December 31, 2020 and 2019. ESH REIT has no variable lease costs or short-term leases.

For the year ended in December 31, 2020 and 2019, components of ESH REIT's total lease costs are as follows (in thousands):

			Year Ended December 31,
			2020						2019
Operating lease costs			$	1,305					$	1,348
Finance lease costs			301						242
Total lease costs			$	1,606					$	1,590

Rent expense on operating leases was $ 1.5 million for the year ended December 31, 2018, and was recognized on a straight-line basis.

ESH REIT’s right-of-use assets and lease liabilities are as follows (in thousands):

			December 31, 2020						December 31, 2019
Right-of-use assets:
Operating (1)			$	1,388					$	2,084
Finance (2)			4,354						3,979
Lease liabilities:
Operating (3)			9,036						9,207
Finance			3,668						3,379

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(1)    Included in other assets on the accompanying consolidated balance sheets.

(2)    Included in property and equipment, net on the accompanying consolidated balance sheets.

(3)    Included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

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Maturities of lease liabilities as of December 31, 2020, are as follows (in thousands):

Years Ending December 31,						Operating Leases						Finance Leases
2021						$	784					$	850
2022						806						397
2023						552						400
2024						503						402
2025						503						429
Thereafter						77,091						2,671
Total						$	80,239					$	5,149
Total discounted lease liability						$	9,036					$	3,668
Difference between undiscounted cash flows and discounted cash flows						$	71,203					$	1,481
Weighted-average remaining lease term						60 years						10 years
Weighted-average discount rate						6.6		%				6.7		%

ESH REIT's leases do not contain residual value guarantees and do not contain restrictions with respect to incurring additional financial obligations or paying dividends. As of December 31, 2020, ESH REIT does not have any material leases that have not yet commenced.

Legal Contingencies —ESH REIT is not a party to any litigation or claims, other than routine matters arising in the ordinary course of business that are incidental to the operation of its business. ESH REIT believes that the results of all litigation and claims, individually or in the aggregate, will not have a material adverse effect on its consolidated financial statements, its business, results of operations or financial condition.

The Corporation and ESH REIT each maintain an LTIP, as amended and restated in 2015, approved by their shareholders. Under each LTIP, the Corporation and ESH REIT may issue to eligible employees or directors RSUs or other equity-based awards in respect of Paired Shares with service, performance or market vesting conditions. The aggregate number of Paired Shares that may be the subject of awards under the LTIPs shall not exceed 8.0 million, of which no more than 4.0 million may be granted as incentive stock options. Each of the Corporation’s and ESH REIT’s LTIPs has a share reserve of an equivalent number of shares of Corporation common stock and ESH REIT Class B common stock. As of December 31, 2020, 4.8 million Paired Shares were available for future issuance under the LTIPs.

Equity-based compensation expense is recognized by amortizing the grant-date fair value on a straight-line basis over the requisite service period of each award. A portion of the grant-date fair value of all equity-based awards is allocated to a share of Corporation common stock and a portion is allocated to a share of ESH REIT Class B common stock. Equity-based compensation expense, which is included in general and administrative expenses in the accompanying consolidated statements of operations, was $ 0.5 million, $ 0.5 million and $ 0.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, there was $ 0.2 million of unrecognized compensation expense related to outstanding equity-based awards, which is expected to be recognized subsequent to December 31, 2020 over a weighted-average period of 0.4 years. Total unrecognized compensation expense will be adjusted for forfeitures as they occur.

ESH REIT will have to pay more or less for a share of the Corporation common stock at the time of settlement than it would have otherwise paid at the time of grant as the result of market changes in the value of a Paired Share between the time of grant and the time of settlement. An increase in the value allocated to a share of common stock of the Corporation due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as a distribution to the Corporation. A decrease in the value allocated to a share of common stock of the Corporation due to market changes in the value of a Paired Share between the time of grant and the time of settlement is recorded as additional paid in capital from the Corporation.

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For LTIP awards granted by the Corporation, ESH REIT will receive compensation for the fair value of the Class B shares on the date of settlement of such Class B shares by ESH REIT. As of December 31, 2020, the Corporation had granted a total of 5.6 million service-based, performance-based and market-based RSUs, of which 4.3 million RSUs were either forfeited or settled. As a counterparty to the remaining outstanding RSUs, ESH REIT is expected to issue and be compensated in cash for 1.3 million shares of Class B common stock of ESH REIT in future periods, assuming market-based awards vest at 100 % and no forfeitures.

RSU activity, all of which relates to awards with service vesting conditions, during the years ended December 31, 2020, 2019 and 2018, was as follows:

			Number of RSUs (in thousands)						Weighted- Average Grant- Date Fair Value
Outstanding at January 1, 2018			39						$	16.91
Granted			28						$	19.48
Settled			( 34 )						$	17.32
Forfeited			—						$	—
Outstanding at December 31, 2018			33						$	18.68
Granted			31						$	17.32
Settled			( 33 )						$	18.68
Forfeited			—						$	—
Outstanding at December 31, 2019			31						$	17.32
Granted			41						$	11.33
Settled			( 31 )						$	17.32
Forfeited			—						$	—
Outstanding at December 31, 2020			41						$	11.33
Vested at December 31, 2020			—						$	—
Nonvested at December 31, 2020			41						$	11.33
Vested at December 31, 2019			—						$	—
Nonvested at December 31, 2019			31						$	17.32

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Schedule III—Real Estate and Accumulated Depreciation as of December 31, 2020 (Continued)
(dollars in thousands)
																					Cost Capitalized Subsequent to												Gross Amount Carried at Close of
									Initial Cost												Acquisition (1)												Period December 31, 2020
Description			Location						Land and Improvements			Building and Improvements			FF&E			Development in Process			Land and Improvements			Building and Improvements			FF&E			Development in Process			Land and Improvements			Building and Improvements			FF&E			Development in Process			Total (2)			Accumulated Depreciation			Date Acquired			Date of Construction			Depreciable Lives (Years) (3)
Seattle - Tukwila			Tukwila, WA			(4)			1,056			4,724			38			—			73			1,000			1,061			—			1,129			5,724			1,099			—			7,952			( 2,862 )			10/8/2010			1997			32
Olympia - Tumwater			Tumwater, WA			(4)			1,428			5,495			70			—			109			750			1,203			—			1,537			6,245			1,273			—			9,055			( 2,819 )			10/8/2010			2001			41
Portland - Vancouver			Vancouver, WA			(4)			1,122			5,671			42			—			163			822			1,252			—			1,285			6,493			1,294			—			9,072			( 3,119 )			10/8/2010			1997			37
Appleton - Fox Cities			Appleton, WI			(4)			1,129			3,042			39			—			150			601			1,024			—			1,279			3,643			1,063			—			5,985			( 2,170 )			10/8/2010			1997			37
Milwaukee - Brookfield			Brookfield, WI			(4)			2,579			5,647			49			—			58			1,195			1,388			—			2,637			6,842			1,437			—			10,916			( 3,389 )			10/8/2010			1998			38
Madison - Junction Court			Madison, WI			(4)			1,197			2,790			39			—			107			661			960			—			1,304			3,451			999			—			5,754			( 2,035 )			10/8/2010			1998			38
Madison - Old Sauk Rd.			Madison, WI			(4)			1,332			2,506			46			—			149			572			956			—			1,481			3,078			1,002			—			5,561			( 1,914 )			10/8/2010			1998			39
Milwaukee - Waukesha			Waukesha, WI			(4)			1,311			3,215			44			—			116			902			1,131			—			1,427			4,117			1,175			—			6,719			( 2,413 )			10/8/2010			1997			37
Milwaukee - Wauwatosa			Wauwatosa, WI			(4)			1,732			5,151			44			—			104			711			1,368			—			1,836			5,862			1,412			—			9,110			( 2,953 )			10/8/2010			1997			41
Land Available for Development			Bloomington, MN			(4)			1,821			—			—			—			( 821 )			—			—			—			1,000			—			—			—			1,000			—			10/8/2010
Development in Process						(8)			—			—			—			—			—			—			—			46,488			—			—			—			46,488			46,488			—			various
ESH Hospitality, Inc. and Subsidiaries, Investment In Real Estate									$	1,147,766		$	2,310,240		$	45,198		$	—		$	102,041		$	604,443		$	745,386		$	46,496		$	1,249,807		$	2,914,683		$	790,584		$	46,496		$	5,001,570		$	( 1,540,358 )
Impairment charges (5)			Various						—			—			—						( 2,366 )			( 35,745 )			( 7,170 )						( 2,366 )			( 35,745 )			( 7,170 )			—			( 45,281 )			22,122
Management Business			Charlotte, NC						—			—			—						—			2,917			28,735						—			2,917			28,735						31,652			( 23,750 )			9/1/2011
Extended Stay America, Inc. and Subsidiaries, Investment in Real Estate									$	1,147,766		$	2,310,240		$	45,198		$	—		$	99,675		$	571,615		$	766,951		$	46,496		$	1,247,441		$	2,881,855		$	812,149		$	46,496		$	4,987,941		$	( 1,541,986 )

(1) Costs capitalized subsequent to acquisition are presented net of disposals and impairment charges.

(2) The aggregate cost for federal income tax purposes as of December 31, 2020 for Extended Stay America, Inc. and ESH Hospitality, Inc. was $5,015,299 and $4,987,087, respectively.

(3) Depreciable lives are based on the largest asset — hotel building(s); however, a portion of the real estate at each hotel property consists of items with useful lives less than those of the building(s).

(4) Each of these properties serve as collateral for the ESH REIT Credit Facilities.

(5) These amounts represent cumulative impairment charges recognized by Extended Stay America, Inc. subsidiaries.

(6) The majority of the depreciable real estate at this property consists of furniture, fixtures and equipment, which have estimated useful lives that range between 1 and 10 years.

(7) Land is subject to ground lease.

(8) Includes 8 sites in various stages of development or construction.

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Extended Stay America, Inc. and Subsidiaries and

ESH Hospitality, Inc. and Subsidiaries

Schedule III—Real Estate and Accumulated Depreciation

(in thousands)

A summary of activity of investment in real estate and accumulated depreciation is as follows:

The Company’s changes in investment in real estate for the years ended December 31, 2020, 2019 and 2018 were as follows:

			December 31, 2020						December 31, 2019						December 31, 2018
Balance, beginning of the period			$	4,867,499					$	4,671,737					$	4,895,933
Additions during period:
Capital expenditures			192,731						251,158						196,545
Acquisitions			—						10,136						12,729
Deductions during period:
Dispositions and other			71,194						62,853						389,870
Impairment			1,095						2,679						43,600
Balance, end of period			$	4,987,941					$	4,867,499					$	4,671,737

The Company’s changes in accumulated depreciation for the years ended December 31, 2020, 2019 and 2018 were as follows:

			December 31, 2020						December 31, 2019						December 31, 2018
Balance, beginning of the period			$	1,373,950					$	1,218,105					$	1,142,799
Additions during period:
Depreciation			203,421						195,342						207,953
Deductions during period:
Dispositions and other			35,385						39,497						132,647
Balance, end of period			$	1,541,986					$	1,373,950					$	1,218,105

ESH REIT’s changes in investment in real estate for the years ended December 31, 2020, 2019 and 2018 were as follows:

			December 31, 2020						December 31, 2019						December 31, 2018
Balance, beginning of the period			$	4,878,615					$	4,683,544					$	4,918,804
Additions during period:
Capital expenditures			188,072						244,747						191,099
Acquisitions			—						10,136						12,733
Deductions during period:
Dispositions and other			64,442						59,812						439,092
Impairment			675						—						—
Balance, end of period			$	5,001,570					$	4,878,615					$	4,683,544

ESH REIT’s changes in accumulated depreciation for the years ended December 31, 2020, 2019 and 2018 were as follows:

			December 31, 2020						December 31, 2019						December 31, 2018
Balance, beginning of the period			$	1,372,595					$	1,215,899					$	1,143,164
Additions during period:
Depreciation			201,012						193,081						207,278
Deductions during period:
Dispositions and other			33,249						36,385						134,543
Balance, end of period			$	1,540,358					$	1,372,595					$	1,215,899

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